Two US hedge funds have forced the Co-operative Bank to set up an independent committee to review the American investors' plan to turn the 140-year-old mutually owned bank into a listed company.
One of the hedge funds, Aurelius Capital Management, is best known for a long-running battle to force Argentina to pay out $1.3bn (£800m) while Silver Point Capital has been linked to a number of troubled financial firms such as Lehman and Iceland's Glitnir.
Through their LT2 Group – so called because they own what are known as lower tier two bonds – they are attempting to derail a plan to force bondholders to take losses on their investments to plug a £1.5bn hole in the bank.
The Co-operative Group – formed by the Rochdale Pioneers in 1844 and now owners of grocers, pharmacies and funeral homes as well as the bank – wants bondholders to agree to take £500m of losses in return for the conglomerate putting £1bn into the bank.
About £500m of that £1bn will come through selling off insurance businesses and another £500m by issuing new bonds to existing bondholders who will also get shares in the bank. The shares will be listed on the stock market, but majority owned by the Co-op Group.
Euan Sutherland, the new boss of the Co-op group, warned last month that the only alternative to the Co-op plan was nationalisation, but the hedge funds argue that their plan, a straight-forward swap of £1.3bn of debt into equity, is a real alternative.
On Friday night, the Co-op Bank and the Group said they would form an independent committee – chaired by the bank's chairman Richard Pym and advised by bankers at Greenhill – to "consider third-party approaches in relation to the group's recapitalisation plan" in direct response to the approach by LT2 at the start of the week.
The identities of the dozen or so other members of LT2 is not known publicly and not even to other members of the group, which is being advised by specialist investment bank Moelis. Aurelius and Silver Point are known for fighting hard when their investments run into trouble.
Led by Mark Brodsky, Aurelius is locked in court battles to get $1.3bn from Argentina – along with NML, part of Elliott Associates. Last month a New York appeal court rejected attempts by Argentina to overturn an earlier ruling that requires the country to pay the money related its 2002 default. The case has now gone to the US supreme court.
Brodsky, a lawyer by background, had worked at Elliott before he set up his own venture in 2005, naming it after the respected Roman emperor Marcus Aurelius.
Aurelius has been involved in debt restructurings as diverse as Dubai World and of the US publisher Tribune Co, owner of the Los Angeles Times.
Its projects can be long-running. Some of its legal battles have lasted a decade. In taking on the Co-op, Aurelius is working with the Silver Point Capital firm set up in Connecticut in 2002 by two former Goldman Sachs employees Edward Mulé and Robert O'Shea.
It has wide-range of investments covering broadcasting – it bought two US TV stations out of bankruptcy – as well as car makers and financial services.
Silver Point played a high profile role in the bankruptcy of Hostess, the US food company best known for its Twinkies cakes.
The two hedge funds are thought to have built up heir holdings in Co-op bonds after the bank was downgraded to junk in May and its chief executive Barry Tootell quit. On Friday the banker who stood in until a full time successor was found, Rod Bulmer, announced he would quit in the latest management upheaval.
The LT2 Group reckons it has a big enough combined stake to block the Co-op's current restructuring plan, which has already been approved by the Prudential Regulation Authority and needs to be voted through by 75% of bondholders.
There are two other groups of bond holders – one run by Mark Taber for private investors and another involving CLS Holdings that has around 2% of the debt. The latter is thought to be supportive of the LT2 Group idea.
theguardian.com
One of the hedge funds, Aurelius Capital Management, is best known for a long-running battle to force Argentina to pay out $1.3bn (£800m) while Silver Point Capital has been linked to a number of troubled financial firms such as Lehman and Iceland's Glitnir.
Through their LT2 Group – so called because they own what are known as lower tier two bonds – they are attempting to derail a plan to force bondholders to take losses on their investments to plug a £1.5bn hole in the bank.
The Co-operative Group – formed by the Rochdale Pioneers in 1844 and now owners of grocers, pharmacies and funeral homes as well as the bank – wants bondholders to agree to take £500m of losses in return for the conglomerate putting £1bn into the bank.
About £500m of that £1bn will come through selling off insurance businesses and another £500m by issuing new bonds to existing bondholders who will also get shares in the bank. The shares will be listed on the stock market, but majority owned by the Co-op Group.
Euan Sutherland, the new boss of the Co-op group, warned last month that the only alternative to the Co-op plan was nationalisation, but the hedge funds argue that their plan, a straight-forward swap of £1.3bn of debt into equity, is a real alternative.
On Friday night, the Co-op Bank and the Group said they would form an independent committee – chaired by the bank's chairman Richard Pym and advised by bankers at Greenhill – to "consider third-party approaches in relation to the group's recapitalisation plan" in direct response to the approach by LT2 at the start of the week.
The identities of the dozen or so other members of LT2 is not known publicly and not even to other members of the group, which is being advised by specialist investment bank Moelis. Aurelius and Silver Point are known for fighting hard when their investments run into trouble.
Led by Mark Brodsky, Aurelius is locked in court battles to get $1.3bn from Argentina – along with NML, part of Elliott Associates. Last month a New York appeal court rejected attempts by Argentina to overturn an earlier ruling that requires the country to pay the money related its 2002 default. The case has now gone to the US supreme court.
Brodsky, a lawyer by background, had worked at Elliott before he set up his own venture in 2005, naming it after the respected Roman emperor Marcus Aurelius.
Aurelius has been involved in debt restructurings as diverse as Dubai World and of the US publisher Tribune Co, owner of the Los Angeles Times.
Its projects can be long-running. Some of its legal battles have lasted a decade. In taking on the Co-op, Aurelius is working with the Silver Point Capital firm set up in Connecticut in 2002 by two former Goldman Sachs employees Edward Mulé and Robert O'Shea.
It has wide-range of investments covering broadcasting – it bought two US TV stations out of bankruptcy – as well as car makers and financial services.
Silver Point played a high profile role in the bankruptcy of Hostess, the US food company best known for its Twinkies cakes.
The two hedge funds are thought to have built up heir holdings in Co-op bonds after the bank was downgraded to junk in May and its chief executive Barry Tootell quit. On Friday the banker who stood in until a full time successor was found, Rod Bulmer, announced he would quit in the latest management upheaval.
The LT2 Group reckons it has a big enough combined stake to block the Co-op's current restructuring plan, which has already been approved by the Prudential Regulation Authority and needs to be voted through by 75% of bondholders.
There are two other groups of bond holders – one run by Mark Taber for private investors and another involving CLS Holdings that has around 2% of the debt. The latter is thought to be supportive of the LT2 Group idea.
theguardian.com
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