A group of US hedge funds has slammed the Co-operative Bank for being “irresponsible” following a lack of engagement ahead of the bank’s crucial debt restructuring.
Investment bank Moelis & Company, which is acting for a consortium of bondholders including US hedge funds Aurelius Capital Management and Silver Point Capital, made its attack after the bank said it would only negotiate with bondholders once the terms of its £1bn debt exchange had been finalised, the Financial Times reports.
Moelis managing director Caroline Silver told the newspaper: “The bondholders we advise are determined to see Co-op Bank placed on a strong financial footing by the end of this year as required by the regulator.
“There are commercially reasonable ways to achieve this goal, but these require bondholder co-operation, which has consistently been offered. It would therefore strike us as irresponsible for the bank’s officers and directors to refuse to engage with bondholders and to waste time putting together a unilateral, take-it-or-leave-it offer.”
The debt exchange is a vital component of Co-op’s efforts to plug a £1.5bn capital hole. Bondholders face haircuts on their investments as part of the move to convert existing debt into equity and new bonds and are expected to contribute about £500m to the £1bn exchange, with Co-op Group supplying the other £500m.
The Co-op says: “While we recognise the concerns of these professional investors in the bank’s bonds, we believe that our plan … 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.”
Last week, The Co-operative Bank reported losses of £709m for the first half of the year, driven by losses of £496m from and £61m related to further consumer redress payments, including PPI misselling. This compares with losses of £57m for the same period in 2012.