Co-Op Bank Bondholders Demand Capital Shortfall Review

A group of Co-Operative Bank Plc bondholders urged the U.K.’s Prudential Regulation Authority to review the bank’s plan to raise 1.5 billion pounds ($2.2 billion) to plug a capital shortfall.

Mark Taber, a private investor and organizer for consumer bondholders has written to Andrew Bailey, chief executive officer of the regulator, to ask for the calculations of the capital gap to be published, he said in a letter seen by Bloomberg News today.

The Co-Op bank said last month it will swap some debt for equity and trade on the London Stock Exchange to raise money after it abandoned plans to buy branches from Lloyds Banking Group Plc. The customer-owned lender is seeking to raise 1 billion pounds by asking existing bondholders to exchange subordinated debt for new equity and senior debt, with 500 million pounds more gained through the sale of insurance assets.

More than 1,300 bondholders have contacted Taber “in great distress since the bank’s recent announcement concerning the PRA’s view of its capital requirement and the plan for addressing it,” he said in the statement.

Taber’s group is one of at least three seeking to negotiate a better financial deal under the debt restructuring. Aurelius Capital Management LP, a New York-based hedge fund, and some other bondholders are considering hiring a legal adviser, according to a person with knowledge of the matter. A third bondholder committee comprising U.K. insurance companies is being formed by the Association of British Insurers, the Financial Times said last month.

“We can confirm that we’ve received the letter and will respond in due course,” Sarah Bailey, a Bank of England spokeswoman, said today by telephone.

Co-Op Bank’s capital has been depleted by soured consumer and commercial real estate loans stemming from the purchase of Britannia Building Society in 2009. Loan impairments more than quadrupled to 468.7 million pounds in 2012, the company said in March. The bank had a pretax loss of 673.7 million pounds in 2012.