Investors who hold Co-op Bank bonds could lose at least 55% of their money in a new restructuring deal designed to stop the bank from collapsing.
Co-op Bank has warned that retail bond holders will receive a maximum of 45p in the pound for their bonds, under the terms of a £700 million bailout.
It is the second-time bondholders have seen the value of their holdings slashed as the bank tries to save itself from collapse with another restructuring deal. The bank has been in dire straits since a £1.5 billion hole in its finances was discovered in 2013.
What’s the deal?
Under the latest deal bondholders will lose at least 55% of the value of their holdings. At present, the bank says retail investors will receive 45p in the pound for their bonds, but this could fall even further as Co-op Bank has set aside just £13.5 million to pay ordinary investors. This will happen if enough bondholders qualify as ‘retail bondholders’ to exceed the cap, meaning the payout has to be scaled back.
If you hold Co-op Bank’s subordinated bonds that pay an 11% coupon and were due to mature in 2023 then you will be affected by the new deal. These bonds were issued during an earlier restructuring of the bank to replace permanent interest-bearing shares (Pibs) issued by Britannia Building Society, that Co-op Bank took over.
When the Pibs were replaced investors lost about 50% of their original investment, making this latest cut an even more bitter pill to swallow.
What will happen to me?
If your bond holdings in Co-op Bank are worth less than £100,000 then you are likely to qualify as a retail investor. If you hold more than that you are likely to be offered Co-op Bank shares instead of cash.
Retail bondholders are being “harshly treated,” according to Mark Taber, an adviser on retail bonds who campaigned for a better deal for Co-op Bank bondholders in the previous restructuring.
“Co-op Bank is probably trying to scare retail investors into selling their bonds in the market with the talk of a haircut,” Taber told The Telegraph.
The price of the bonds has tumbled in the wake of the news.
Up next:
Avoid rip-off fees: how to invest for less