The American hedge fund owners of the Co-operative Bank are expected to stump up £300m as part of a rescue deal for the troubled former mutual.
Silver Point Capital, Golden Tree Asset Management and other vulture funds are in “pole position” to take full ownership of the bank, according to City sources.
The cash injection will come as welcome news to the self-styled ethical bank, which is facing extinction as a result of insufficient capital levels and years of crushing losses.
The repayment of a £400m bond due in September has piled pressure on the bank’s owners to find an urgent solution. Debt markets typically dry up in summer.
“The shape of the deal is expected in the coming weeks. The hedge funds may not make an announcement,” said a source close to the lender.
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Once the hedge funds commit to pumping in rescue funds, the Co-op bank will then launch a debt-for-equity swap to raise an additional £450m.
In March, the Manchester-based bank said it would need as much as £750m of new capital to prevent it being forced into an orderly wind-down by the Bank of England.
The bank launched a sale process. However, previously mooted bidders Virgin Money and Clydesdale have since dropped away. Only one unidentified buyer remains.
A group of hedge funds led by Aurelius Capital, Silver Point Capital and Monarch Alternative Capital took control of the bank in 2013 as part of a restructuring. The discovery of a £1.5bn shortfall in its capital position had been compounded by mounting losses. Over the past five years, the bank’s cumulative losses total £2.7bn. The Co-op bank declined to comment.