Co-Op Bank Said to Face Pension Tangle in Latest Rescue Hurdle
Co-Op Bank Is in `Advanced' Talks With Bondholders on Capital
(Bloomberg) -- U.S. hedge funds pushing to recapitalize Britain’s Co-Operative Bank Plc are mired in talks to shed the lender’s pension obligations from the Co-Op supermarket chain, according to people familiar with the matter.
A group of the bank’s bondholders are pushing to split its employee retirement plan away from the Co-Operative Group in talks involving the pension fund’s trustees, said the people, who asked not to be identified because the details are private. An agreement on the matter would be the final major step towards rescuing the lender, the people added.
Co-Op Bank said Monday it’s in “advanced” talks with investors to raise capital as the 145-year-old bank and its bondholders push to avoid a similar fate to Spain’s Banco Popular Espanol SA, which lost its independence in a fire sale directed by regulators last week. The lender also said it’s continuing with the formal sale process and plans to separate its pension fund.
“The bank continues to fully discuss both the sale process and the capital-raise options with the Prudential Regulation Authority, which has welcomed the sale and capital-raise process,” the lender said in the statement.
Co-Op Bank’s bondholders -- led by Silver Point Capital, GoldenTree Asset Management, Cyrus Capital Partners and BlueMountain Capital -- have won an outline of support from the Bank of England for their recapitalization plan, according to the people familiar with the matter. The lender has previously said it needs a buyer or would have to raise as much as 750 million pounds ($955 million) to meet regulatory capital requirements.
The investors simultaneously want to extract the bank from its former parent’s retirement plan, shedding its liability for former supermarket workers’ pensions should the retailer fail, a potential burden that could make it harder to ultimately sell the lender as a standalone operation in future, the people added. Co-Op Group, the longtime controlling shareholder of the bank, has seen its stake diluted to about 20 percent.
About 250 million pounds in cash from the bondholders could be required to win support from the pension trustees and seal a deal with the Co-Op Group, Sky News reported earlier on Monday. The bondholders have proposed paying 62.5 million pounds in cash, with the remainder coming from the bank’s assets, according to the report.
To contact the reporter on this story: Richard Partington in London at rpartington@bloomberg.net.
To contact the editors responsible for this story: Michael J. Moore at mmoore55@bloomberg.net, Keith Campbell, Christian Baumgaertel