Fixed Income  

Beleaguered Co-op suspends bonds after recap plans fail

Co-operative Bank has suspended a number of listed corporate bonds following an announcement earlier today (21 October) that it will be forced to revise its recapitalisation plans amid speculation the Co-operative Group could be set to lose overall control of the group.

According to a statement on the London Stock Exchange, the bank requested the suspension following the announcement by The Co-Operative Group Limited that it could have to alter its plans to recapitalise the beleagured bank.

An earlier statement from the bank published today (21 October) revealed that the bank was “engaging with different bondholder constituencies and seeking to balance the requirements and expectations of these parties”.

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The statement added that many elements of the beleaguered bank’s recapitalisation plan would be “materially different” to an original outline in June designed to raise £500m towards the bank’s capital shortfall of £1.5bn, by swapping retail bond holdings into shares in a restructured bank.

The original proposals would have seen the Co-Operative Group contribute £1bn to the recapitalisation plans in return for a 70 per cent stake in the bank.

Reports have claimed that resistance of US-based hedge funds to the recapitalisation has prevailed, with the Co-op now having to reconsider how it will meet the £1.5bn capital shortfall and being likely to be forced to cede a shareholding of more than 50 per cent.

Adrian Lowcock, senior investment manager at Hargreaves Lansdown, said the suspension highlighted the risks of investing in corporate bonds for retail investors and highlighted the potential virtues of investing in bonds exclusively through funds.

“Investing in individual corporate bonds has its risks. It is important investors are fully aware of the risks before they consider buying shares or bonds in any company.

“Most investors should consider gaining exposure to corporate bonds via a bond fund. In addition to obtaining access to an experienced manager, investors also benefit from diversification.”