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Categorized | Banks

Co-op Bank secures restructuring support

Posted on November 29, 2013

The Co-operative Bank’s retail bondholders have voted almost unanimously in favour of a rescue restructuring, enabling the lender to push ahead with plans to fill a £1.5bn capital hole by the end of the year.

Results from an early participation vote, which closed on Friday, showed that more than the required two-thirds of investors submitted their forms. Of those that did, 99.91 per cent supported the recapitalisation, the Co-op said.

    The result will be welcome news for the Co-op, which has had a rocky few weeks since it announced the restructuring deal with bondholders on November 4.

    The bank was thrown into crisis shortly after, as its former chairman, Reverend Paul Flowers was filmed allegedly trying to buy illegal drugs. The Co-op has admitted that the events have damaged its reputation and contributed to a loss of current account customers in recent weeks.

    In a statement released on Friday night, the Co-op said the bank and its parent group were “delighted at the overwhelming levels of support for the liability management exercise at this critical juncture . . . We are now highly confident that our £1.5bn recapitalisation plan for The Co-operative Bank can be achieved.”

    The bank is being forced to raise the fresh capital after being hit by large losses on bad debts, and charges relating to mis-sold payment protection insurance and a mishandled IT upgrade.

    The outcome of the vote will also be a relief for a group that represented holders of the Co-op Bank’s lower tier two bonds, LT2, and its advisers – Moelis, the investment bank, and Shearman & Sterling, the law firm – which together led the bank recapitalisation talks with the Co-op.

    The LT2 group consisted of several hedge funds, which built a blocking stake in the lower tier two bonds and used it to negotiate a better deal for creditors than the Co-op had proposed. Aurelius – the biggest hedge fund in the consortium, and one that was central to the recapitalisation talks – sold almost its entire holding days after the plan was announced.

    The Co-op and the LT2 group had some concerns that they may not receive sufficient numbers of votes from retail investors to approve the recapitalisation. Many of the retail investors are pensioners in their 80s and 90s.

    If the bank had failed to secure support from investors, its recapitalisation plan would have collapsed and it would likely have been put in to a “resolution process” run by regulators.

    The final deadline for votes is December 6 and the Co-op will announce the full result midway through next month.