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Co-op bondholders warn PRA they may reject capital plans
by Michelle Abrego on Sep 04, 2013 at 10:53
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 the 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.
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