West Bromwich holders exchange all PPDS and 77.38% of 6.15% shares, tender 10.77% more

By Susanna Moon

Chicago, April 10 – West Bromwich Building Society said holders had tendered for exchange all of its 3,650 profit participating deferred shares (PPDS) and £58,032,000, or 77.38%, of its £75 million 6.15% permanent interest bearing shares (PIBS).

Investors had tendered another £8,077,000 principal amount, or 10.77%, of the PIBS in the tender offer, according to a company press release on Tuesday.

The society said it accepted for exchange all of the PPDS and PIBS offered for exchange as well as all of the PIBS tendered in the offer.

West Bromwich will issue a total of 1,288,813 core capital deferred shares, issue £22,498,600 of tier 2 notes, pay total cash of £29,257,257.18 in the exchange and pay total cash of £4,200,040 in the PIBS tender offer.

After settlement on April 12, no PPDS will remain outstanding and £8,891,000 principal amount of the PIBS will remain outstanding.

The offers began on March 8.

At the meeting for the PIBS on April 9, more than one-third of the outstanding shares was represented at and the extraordinary resolution passed with votes cast for more than three-quarters of the PIBS represented.

The exchange offer was announced Dec. 13, when the society said it was aiming to “modernize” its capital structure through the issue of perpetual core capital deferred shares (CCDS) and 11% 20-year tier 2 subordinated notes.

In exchange for the PPDS, the issuer planned to offer a combination of CCDS and tier 2 notes and cash, according to a previous company announcement.

For the 6.15% notes, the society planned to issue CCDS and pay cash.

The issuer also was seeking holder approval to allow the society to mandatorily exchange any remaining PPDS for CCDS, tier 2 notes and cash on substantially the same economic terms as those of the exchange.

The liability management exercise was set to begin in the first half of 2018, subject to approval of the Prudential Regulation Authority, the previous release noted.

For each £50,000 principal amount of PPDS, the society was expecting to offer the following:

• £6,164.38, or 12.329% of the original principal value, which will be used to pay an equivalent principal amount of tier 2 notes;

• £31,013.70, or 62.027% of the original principal value, which will be used to pay CCDS at an issue price of £100 per CCDS, comprising £1 principal value and £99 of premium per CCDS; and

• £750 in cash, or 1.5% of the original principal value.

“Given the society's proposed distribution policy on the CCDS (as set out below), the society anticipates that any trading in the CCDS is likely initially to be at a substantial discount to their issue price,” the release noted.

The society said it did not expect to pay out PPDS dividends.

Holders who exchanged their PPDS, which will also mean voting in favor of any resolutions, were to receive a completion premium of £500 per PPDS, or 1% of the original principal value, if the PPDS exchange settled.

In the proposed exchange for the 6.15% notes, holders were to receive the following for each £100 principal amount:

• £27.16667, which will be used to pay CCDS at an issue price of £100 per CCDS, comprising £1 of nominal value and £99 of premium per CCDS; and

• £41.50 in cash.

The society said it did not expect to pay accrued interest.

Holders who exchanged their 6.15% notes, which also constituted an instruction appointing a proxy to vote in favor of any resolutions, were to receive a completion premium of £1.00 per £100 of principal amount exchanged.

For every £100 of principal amount, the society said it expected to offer retail holders £51.00 in cash.

The issue price for the CCDS was £100 per share representing £1 of nominal amount and £99 of premium per CCDS.

The CCDS will be the most junior-ranking capital instrument of the society. In a winding-up or dissolution, the claims of CCDS holders will be limited to a deeply subordinated claim for any distributions plus a share of any surplus assets once all liabilities have been satisfied in full.

For the tier 2 notes, the issue price was 100% of the principal amount. The tier 2 notes will be subordinated liabilities of the society, ranking junior to unsubordinated liabilities, at least pari passu with other tier 2 securities and in priority to tier 1 securities of the society, including the CCDS and the PIBS.

The tier 2 notes will likely be callable at par after five years.

Offer background

In February, after being challenged by an investor, the society sought clarification from the European Banking Authority for the eligibility of its PPDS as CET1 capital but had not yet received it, according to a previous notice.

Despite its belief that the PPDS meet the CET1 criteria, the society said that it was holding “constructive engagement with major holders of both the PPDS and the PIBS with respect to its options to guard against the possibility of the EBA deciding that the PPDS no longer qualify as CET1.”

The possibilities included PPDS holders agreeing to variations to the special conditions of the PPDS to address the investor challenges and the potential exchange offer in which the CCDS has been designed to comply with the CET1 capital criteria, the society said.

Regardless of the outcome of the EBA's ruling on the PPDS, “the major holders and the society were aligned in their views that a modernization of the society's capital structure would be appropriate.”

The society said it had lined up binding commitments from holders representing about 75.5% of the PPDS and 49.7% of the PIBS.

West Bromwich is a U.K. building society with its headquarters in West Bromwich, England.

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