The bank, which saw its debt downgraded to junk status last month, will raise cash via a ‘bail in’ – a process where loans to the group are converted into shares which will be listed on the London Stock Exchange.
Though bondholders are expected to lose out in the short term, the Co-op said that, by exchanging their bonds for shares, they will gain a “significant minority stake” in the bank, allow them to “share in the upside” of the future.
Speaking to the BBC’s Radio 4 this morning, group CEO Euan Sutherland said: “This is good news for the Co-operative Bank.”
However, in a report written before confirmation of the deal, the Telegraph reported that holders of some £370m worth of permanent interest bearing shares (PIBS) issued by the Co-op and Britannia Building Society before its takeover may have their coupons cancelled.
Speculation about the bank’s future arose following the downgrade by ratings agency Moody’s in May, which itself followed weeks of speculation about its financial position after it posted £600m losses in March and then pulled out of a deal to buy 632 branches from Lloyds Banking Group.
Capital raised via the ‘bail in’ will go to protect the bank against possible future losses and follows attempts by regulators to shore up the banks’ capital following the financial crisis of 2007-8.
