Co-op bondholders put forward bailout alternative

US hedge funds are among a group of Co-op Bank bondholders that are proposing a debt-for-equity swap as an alternative to the Manchester-based bank’s £1.5bn bail out plans.

The group, which includes US hedge funds Aurelius Capital and Silver Point Capital and holds 43% of the bank’s lower Tier 2 bonds, has proposed a swap that will give bondholders majority ownership of the bank.

Under the Co-op’s plan, the bank would be publicly listed with Co-op Group as the majority shareholder and bondholders owning a minority.

In June the bank outlined a plan to raise the money from asset sales, bank loans and by reducing the value of bonds. Last month it stressed there was no “plan B” and failure to back the proposal would lead to the bank’s nationalisation.

The Co-op blames its position on the lending book of the Britannia which it merged with in 2008. It has not commented on the alternative proposal.

In a statement it said: “The Co-operative Group and The Co-operative Bank are together working to deliver a solution that protects the future of the bank and helps our customers. Our Capital Action Plan, announced on June 17, was developed after full consideration of all the options, including structures that were similar in nature to that outlined by Moelis.

“We are currently working on the detail of our plan, which we believe is in the interests of all our stakeholders. We are uncertain of the structure, deliverability and conditionality of what is proposed by Moelis, but we are willing to engage with them to investigate further. To that end, we last week offered to engage with them and look forward to doing so.”