Co-operative Bank dated noteholders group requests scheme modification

By Caroline Salls

Pittsburgh, Dec. 2 - Members of an informal group of holders of the Co-operative Bank plc's dated notes asked the bank to apply for a modification of its proposed scheme of arrangement, according to a news release.

The informal group consists of holders of 48.3% in value of the dated notes. The informal group will remain locked up to vote in favor of the scheme whether or not the requested modification is approved by the court, the release said.

The company said no modification will be made to the scheme if, as a result, the settlement date of the liability management exercise (LME) would fall after Dec. 31

Co-operative said the terms of the exchange offers and the proposals made to holders of the preference shares, 13% bonds and 5.5555% bonds are unaffected by the requested modification, and that the timetable for the exchange offers and the proposals is currently unchanged.

Under the scheme, the holders of the dated notes have been asked to vote on proposals under which all of the notes would be exchanged for a combination of £100 million of 11% subordinated notes due 2023 to be issued by the bank and 112.5 million new ordinary shares in the bank, representing 45% of the total issued share capital of the bank following completion of the LME.

The holders of the dated notes will also be entitled to subscribe for 62.5 million additional new ordinary shares in the bank (at a price of £2.00 per new ordinary share, representing 25% of the total issued share capital) for an aggregate consideration equal to £125 million.

The scheme provides that any holder of dated notes is entitled to elect to subscribe for between a minimum election of 50,000 and a maximum election of 62.5 million additional new ordinary shares.

Scheme change proposal

Under the requested modification, the dated notes would be exchanged for a combination of £100 million of Bank T2 notes and 141.67 million new ordinary shares of Co-operative, representing 56.67% of the total issued share capital of the bank following completion of the LME.

The holders of dated notes would also be entitled to subscribe for 33.33 million additional new ordinary shares in the bank at a price of £3.75 per new ordinary share, representing 13.33% of the total issued share capital following completion of the LME, for an aggregate consideration of £125 million.

According to the release, this subscription would be fully underwritten by the informal group.

Also under the modified scheme, any holder of dated notes would be entitled to elect to subscribe for between a minimum election of 26,667 and a maximum election of 33.33 million additional new ordinary shares.

The modification would be subject to court approval. Preconditions to that approval would include holders of not less than 48% of the dated notes by value entering into new lock-up agreements and entry into underwriting arrangements.

A hearing on the modification request is scheduled for Dec. 3.

Recapitalization support

The bank said in another news release that retail bondholders back its recapitalization plan.

In addition, Co-operative said there is overwhelming support for the LME from holders of preference shares, 13% bonds and 5.5555% bonds, with 99.91% of the votes submitted being in favor of the recapitalization.

Proposals are expected to be approved by these parties at Dec. 11 meetings.

The Co-operative Group and the Co-operative Bank said they are highly confident in their £1.5 billion recapitalization plan for the bank, and an early participation threshold condition has been satisfied.

Completion of the LME is also subject to scheme approval and sanction, which is currently expected on or shortly after Dec. 16.

"We are now highly confident that our £1.5 billion recapitalization plan for The Co-operative Bank can be achieved," the Co-operative entities said in the release.

As of the early participation deadline, voting instructions for 87.84% of the total outstanding face value of the preference shares had been received, of which 100% were voted in favor of the recapitalization; voting instructions for 78.08% of the outstanding face value of 13% bonds had been received, of which 99.86% were voted in favor; and 95.92% of the outstanding face value of 5.5555% bonds had been received, of which 99.91% were voted in favor.

The bank said the expiration date for exchange offers is Dec. 6.

Bank investigation

According to a separate news release, the Chancellor of the Exchequer ordered an independent investigation into events at the bank and the circumstances surrounding them. The Financial Conduct Authority and the Prudential Regulation Authority are also considering whether they should also launch their own formal enforcement investigations.

The bank said he precise scope and timing of these investigations is yet to be determined.

Co-operative said recent events may have caused some brand and reputational damage, but it is too early to form a definitive view as to the extent of such damage.

The bank said these recent events, together with the competitive landscape in which it operates, the introduction of seven-day account switching and the associated increased competitor marketing activity at a time when the bank has been constrained in its ability to undertake its own marketing activity may be a contributing factor to an increase the bank has seen in the switching out of current accounts.

However, Co-operative said its retail deposit base remains broadly stable, and it is too early to identify any significant trends at this point. Also, the bank's liquidity position remains stable. Overall, the bank said its performance has been consistent with or, in the case of costs, slightly better than, management's expectations.

Co-operative Bank is a Manchester, England-based bank and financial institution.

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