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Co-op bondholders threaten rejection of capital plans
Co-op Bank bondholders have written to Prudential Regulation Authority chief executive Andrew Bailey asking him to intervene on their behalf after becoming frustrated by their treatment by the bank’s parent Co-op Group.
Co-op Bank bondholders have written to Prudential Regulation Authority (PRA) chief executive Andrew Bailey asking him to intervene on their behalf after becoming frustrated with their treatment by the bank’s parent Co-op Group.
Last week the bank posted a £709 million loss and confirmed plans to plug its £1.5 billion capital shortfall in part by asking junior bondholders to foot £500 million through swapping their existing bonds for new debt in the parent company Co-op Group and shares in the soon-to-be floated bank.
However, bondholders are unhappy with the Co-op’s refusal to engage with them over the plans and warned Bailey that the mutual’s behaviour could lead to them rejecting the terms of the offer and forcing a taxpayer bailout of the troubled bank.
The letter to Bailey has been penned by Mark Taber, a fixed income expert who is spearheading an action group of Co-op bondholders.
It said: ‘You will appreciate that the Co-op Group's behaviour is reducing the chances of bondholders accepting its plan and increasing the chance of taxpayer support being required for the bank.’
‘In such circumstances it is essential that the Co-op Group engages constructively with bondholders on a timely basis so that their concerns, including any contentious legal issues, can be addressed and viable alternative proposals worked through and structured if necessary.’
Taber said that the Co-op’s lack of communication with bondholders had caused ‘mistrust’ and a ‘hardening against’ it plans.
He told Bailey the overall plan was subject to risks and could face a legal challenge from the bondholders.
‘The recapitalisation plan is subject to finalisation and its implementation is subject to a number of inherent risks. Risks include a failure by bondholders to participate in the exchange offer, a legal challenge by bondholders to the exchange offer and a failure by, or inability of, the Co-op Group to make its proposed [£500 million] contribution.’
Under the plans the Co-op Group will contribute £500 million if the bondholders accept the debt for equity exchange.
Taber said it was 'unacceptable' for the Co-op to make the contribution conditional on the bondholders accepting the plans and urged the PRA to use its powers to force the Co-op to contribute the money regardless rather than letting it withdraw the commitment.
A spokeswoman for the Co-op said: ‘We are working to deliver a solution to the bank’s problems that will help our customers. While we recognise the concerns of investors in the bank’s bonds, we believe that our plan, developed after full consideration of all the options, is in the long-term interests of the wider stakeholders in the group and the bank.
‘We are currently preparing the prospectus enabling the bank to float and will, of course, be happy to engage formally with all affected bondholders and preference shareholders at the right time.’
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by Gavin Lumsden on Dec 13, 2013 at 17:09