Co-operative asks holders to accept revised recapitalization plan; interest, dividend deferred

By Susanna Moon

Chicago, Nov. 4 - Co-operative Group Ltd. and Co-operative Bank plc said they are launching a revised recapitalization plan to generate the required £1.5 billion of common equity tier 1 capital, which needs approval from a "significant majority" of all holders of subordinated capital securities.

The plan includes a liability management exercise of the bank's subordinated capital securities, according to a company press release.

Co-operative Group is offering retail investors two alternatives, the release noted:

• To take an interest-paying group bond with a lower annual payment but a final capital payment in 12 years' time; or

• The chance to broadly match their current annual payment for the next 12 years without a final capital sum.

The recapitalization plan has the support of investors, including an ad hoc group of holders of 48% of the nominal value of the bank's lower tier 2 capital securities that has signed lock-up agreements to vote for the liability management.

The recapitalization plan is also supported by Mark Taber and others who have organized an ad hoc steering committee to campaign on behalf of retail investors.

The offering to holders of the bank's upper tier 2 perpetual subordinated bonds and preference shares reflects the discussions the bank and the group have had with that committee, the release noted.

Discussions also have been held with a group of institutional investors in the bank's upper tier 2 perpetual subordinated bonds who have indicated their intention to support the plan, as well as the bank's regulators.

More details on plan

The subordinated capital securities involved in the liability management exercise are as follows:

• £60 million 9¼% non-cumulative irredeemable preference shares;

• £110 million 13% perpetual subordinated bonds;

• £200 million 5.5555% perpetual subordinated bonds;

• €34.98 million floating-rate callable step-up dated subordinated notes due 2016;

• £37,775,000 5 7/8% subordinated callable notes due 2019;

• £275 million 9¼% subordinated notes due April 28, 2021;

• £8,747,000 fixed-to-floating subordinated notes due November 2021;

• £235,402,000 7 7/8% subordinated notes due Dec. 19, 2022;

• £200 million 5¾% dated callable step-up subordinated notes due 2024; and

• £150 million 5 7/8% subordinated notes due 2033.

The perpetual subordinated bonds were issued by the bank in replacement of Britannia Building Society permanent interest bearing shares on its merger with Britannia on Aug. 1, 2009, according to a company press release.

"The Co-operative Group is making a very significant contribution of £462 million. Key investors have also committed to put in new money and exchange their bonds predominantly for equity in the bank," Euan Sutherland, the group's chief executive, said in the press release.

"In addition, through the process, The Co-operative Group has made the interests of retail investors a key priority. A significant proportion of the new funds invested by the Group are targeted at those investors. While retail investors will, like all bondholders, suffer a loss in value, we believe these options secure the best possible outcome for them, in the circumstances."

Deferral of interest

The Co-operative Bank also announced the deferral of interest on its 5.5555% perpetual subordinated bonds and payment in kind of its 9¼% preference shares dividend.

The deferral of interest on the bonds and preferreds are related to the bank's liability management exercise for some of its subordinated capital securities, according to a separate bank release.

The next installment of the preference share dividend is scheduled for Nov. 30, and the next scheduled interest payment date for the 5.5555% bonds is Dec. 14.

The bank said that it would pay all deferred interest payment on the 13% bonds originally scheduled for July 31 upon completion of the liability management exercise.

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

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