Monday, 15 May 2017

Virgin Money withdraws Co-op Bank interest as hedge funds circle



Virgin Money has walked away from a potential takeover of the Co-op Bank as the struggling lender prioritises talks with a group of hedge funds about a financial restructuring.
 
Sky News has learnt that the high street lender backed by Sir Richard Branson informed the Co-op Bank in recent days that they were terminating discussions about a formal offer for it, according to an adviser.


The move further increases the likelihood that the Co-op Bank will be recapitalised by either its existing bondholders or new investors, rather than being acquired through a conventional takeover.


Virgin Money had been seen as the most likely bidder for the Co-op Bank, but the prospects had diminished in recent weeks with the latter's decision to hire advisers to work on a debt restructuring.


One source close to the process insisted that the discussions between Virgin Money and the Co-op Bank could still be revived.


Sky News has also learnt that the group of hedge funds with which the Co-op Bank is negotiating includes Cyrus Capital Partners and Blue Mountain Capital Management, two US-based investors with significant exposure to the struggling lender.


They are being represented, alongside GoldenTree Asset Management and Silver Point, by PJT Partners.


Sky News revealed last week that the bondholders - some of which are also shareholders - have lodged a proposal to inject fresh capital into the Co-op Bank.


An insider said on Monday that reports suggesting they were in advanced discussions about a deal was an exaggeration.


Details of their proposal remain unclear, although it would involve the provision of a smaller sum than the £300m of new equity that the Co-op Bank had previously signalled it would require.


A statement is expected to be made by the Co-op Bank in the coming days.


In March, the Co-op Bank said it would require between £700m and £750m of new top-quality capital, the majority of which would be generated by exchanging some of its debt securities for equity.


The remainder - between £250m and £300m - would come from issuing new shares.
 
 
Last month, the Co-op Group wrote off the remaining value of its 20% shareholding in the Co-op Bank - incurring a £140m hit which plunged the supermarkets-to-insurance mutual to a statutory annual loss.


The Co-op Bank has been hit by a string of legacy issues, as well as the challenge posed by ultra-low interest rates, since its £1.5bn bailout in 2013.


Further equity has been raised since then.


The Co-op Bank's huge pension liabilities, and their joint 'ownership' with the Co-op Group, remain among the major obstacles to a sale.


The lender announced an annual loss this year of £477m, taking its total losses since its rescue in 2013 to well over £2.5bn.


If new capital is not forthcoming, regulators would have little choice but to put the Co-op Bank into a resolution process, which would involve an orderly wind-down of the company's operations.


At that point, the likes of Nationwide or Virgin Money could be asked to step forward to take on some or all of the Co-op Bank's four million customers.


A number of other parties, including OneSavings Bank and Santander UK, are more interested in acquiring individual loan portfolios from the Co-op Bank.


The Co-op Bank's balance sheet ballooned following a disastrous merger with the Britannia Building Society, and then ran into trouble when it tried to buy more than 600 branches from Lloyds Banking Group.


Its former chairman, Paul Flowers, brought it into disrepute when his drug-taking and sexual proclivities were exposed by a tabloid newspaper, while his financial competence was questioned by MPs.




SKY                News.