The Netherlands’s top court ordered the Dutch government to pay more than €805 million ($882 million) to holders of the bonds of a long-dead bank, paving the way for returns of about 1,000% for some funds.
(Bloomberg) — The Netherlands’s top court ordered the Dutch government to pay more than €805 million ($882 million) to holders of the bonds of a long-dead bank, paving the way for returns of about 1,000% for some funds.
Notes issued by SNS Reaal, which was nationalized more than 10 years ago, were initially written down after the lender collapsed under the weight of troubled real estate loans. Now they could recover significant value as a result of the ruling.
Hedge funds, including Brigade Capital Management and Davidson Kempner Capital Management, bought the debt shortly before the nationalization and added to the position in subsequent years, Bloomberg has reported previously. Some of the notes are being quoted as high as 82.5 cents by brokers on Friday while many were sold for as little as 7 cents in the years after the bank’s state rescue. There are litigation costs and holders have had to wait a long time, but it’s possible that some funds made more than 10 times their investment back.
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“Holders of subordinated bonds and loans relating to SNS Reaal and SNS Bank are entitled to compensation,” a statement on the Supreme Court’s website said. “The rulings of the Supreme Court bring an end to this compensation procedure, which has been running since the beginning of March 2013.”
It’s an unusual outcome for holders of notes once deemed near-worthless. The Supreme Court’s decision upholds a ruling from 2021 that ordered the Dutch government to pay junior noteholders, following years of disputes and litigations. The country’s Finance Ministry’s budget for this year provisions for a €1 billion hit from the SNS case, according to a document posted on a government website in September 2022.
“Now that the legal proceedings have been concluded, I will proceed with the payment of compensation,” Finance Minister Sigrid Kaag said in a letter to parliament in response to the verdict. “The ministry made preparations over the past few years to shape this process properly.”
The Dutch government decision to wipe out SNS Reaal’s junior creditors came three years before the European Union laid out a framework for banks’ resolutions that made the bail-in of junior bondholders mandatory.
–With assistance from April Roach.
(Adding details of the trade in third paragraph.)
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