Metro Bank Secures Bondholders’ Support for £600 million Debt Refinancing Deal
Introduction
Metro Bank, one of the leading British lenders, has successfully gained the support of 75% of its bondholders to proceed with a £600 million debt refinancing deal. This deal was urgently agreed upon over the weekend to address a capital hole. The bank had been under pressure to strengthen its balance sheet and had been in talks with regulators prior to reaching this agreement. The refinancing package requires holders of Metro’s riskiest Tier 2 bonds to take a 40% stake, reducing their investments.
Background
Metro Bank’s recent struggles within the UK’s banking industry have compelled it to take measures to fortify its capital position. Metro Bank was the pioneer in a series of challenger banks that aimed to revolutionize the country’s high streets after the financial crisis. However, it has faced significant challenges in recent times, leading to the need for debt refinancing.
The Debt Refinancing agreement
Metro Bank, in its announcement on Sunday evening, confirmed reaching an agreement for its debt refinancing deal, which is expected to close by the end of the year. This deal has received the necessary support from three-quarters of the bondholders. The bank stated that both the Tier 2 facility and the senior MREL facility have committed to supporting written resolutions to approve the debt refinancing. The minimum requirement for own funds and eligible liabilities (MREL) is a regulator-mandated buffer that compels banks to issue loss-absorbing debt, ensuring that in times of trouble, the bank’s creditors are covered, preventing a burden on taxpayers.
Impact on Metro Bank
The successful debt refinancing deal holds significant implications for Metro Bank. The bank has managed to shore up its capital position and meet regulatory requirements through this deal. Metro Bank also announced a capital increase of £325 million, which includes £150 million of new equity from major shareholders and £175 million of new debt from bondholders. The bank is also considering the potential sale of £3 billion of residential mortgages, which would further improve its capital position and reduce risk-weighted assets by approximately £1 billion.
Stakeholder Perspective
Metro Bank’s largest shareholder, Spaldy, the investment vehicle of Colombian billionaire Jaime Gilinski Bacal, injected £103 million as part of the capital increase. This move increased Spaldy’s stake from just under 10% to 53%, giving it majority control. Gilinski sees Metro Bank as an opportunity for future acquisitions, following a similar strategy used in Latin America over the past four decades. He is confident that once costs are brought under control, Metro Bank can be a basis for expansion and growth.
Market Reaction
The market response to Metro Bank’s debt refinancing deal has been notable. Since Friday’s close, Metro Bank shares have risen by 15%. However, they remain over 50% down from a month ago due to UK regulators’ refusal to approve a change that would have lowered capital requirements on the bank’s mortgage portfolio, thereby increasing profitability.
Conclusion
Metro Bank’s successful debt refinancing deal, supported by 75% of its bondholders, has allowed the bank to address its capital hole and strengthen its balance sheet. The bank’s ability to meet regulatory requirements and explore potential opportunities for growth brings optimism for its future prospects. While challenges lie ahead, Metro Bank is taking the necessary steps to regain stability and position itself as a formidable player in the UK banking industry.
Summary: Metro Bank has secured the support of 75% of its bondholders for a £600 million debt refinancing deal. This deal was urgently agreed upon over the weekend to address a capital hole and strengthen the bank’s balance sheet. The refinancing package requires holders of Metro’s riskiest Tier 2 bonds to take a 40% stake, reducing their investments. This debt refinancing agreement, coupled with a capital increase of £325 million, demonstrates Metro Bank’s determination to meet regulatory requirements and improve its capital position. While challenges remain, Metro Bank’s ability to gain bondholders’ support and explore potential opportunities for growth showcases its commitment to regaining stability in the UK banking industry.
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Metro Bank has won the support of 75% of its bondholders to push through a £600 million debt refinancing deal it hastily agreed over the weekend to plug a capital hole.
The British lender has been under pressure to strengthen its balance sheet and was in talks with regulators in recent weeks before agreeing terms with investors at the weekend.
The refinancing package calls for holders of Metro’s riskiest Tier 2 bonds to take a 40% stake. cutting their investments.
Metro announced Sunday evening that it had done so reached an agreement it was expected to close by the end of the year, which the lender confirmed on Wednesday had received the support it requested from three-quarters of bondholders. The deal capped a torrid week for the challenger bank, the first in a series of lenders that had vowed to shake up the UK’s high streets in the wake of the financial crisis.
“The required number of holders of both the Tier 2 facility and the senior MREL facility commit to supporting written resolutions to approve the debt refinancing,” the bank said in a stock exchange announcement on Wednesday.
MREL, or minimum requirement for own funds and eligible liabilities, is a regulatory buffer that forces banks to issue loss-absorbing debt, meaning that if a bank gets into trouble its creditors are bailed out to prevent a saving taxpayers.
Meter added: “Support for debt refinancing is one of the fundamental pillars for the implementation of the operation envisaged by [Sunday] announcement.”
THE refinancing agreement it was agreed in conjunction with a £325m capital increase, split between £150m of new equity from Metro’s major shareholders and £175m of new debt from bondholders.
The bank said it is still discussing whether to sell the amount £3 billion of residential mortgages, a move that could further improve its capital position. A 3 billion pound sale would reduce its risk-weighted assets by around 1 billion pounds, Metro said.
On Monday, Metro Chief Executive Dan Frumkin told analysts there was already interest in the mortgages, hinting that Barclays was a potential buyer.
Asked by a Barclays analyst about the potential sale, Frumkin responded: “We have genuine interest. . . through a series of names – [one not too] different than what’s on your paycheck.”
Metro shares are up 15% since Friday’s close, although they are down more than 50% since Friday’s close. revealed a month ago that UK regulators had refused to approve a change that would have lowered capital requirements on the mortgage portfolio, thus increasing the bank’s profitability.
As part of the capital increase, Metro’s largest shareholder – Spaldy, the investment vehicle of Colombian billionaire Jaime Gilinski Bacal – injected £103m and took its stake from just under 10% to 53%.
Yesterday, Gilinski told the Financial Times that he saw an opportunity to use Metro as a tool basis for acquisitions – once costs are brought under control – following a program similar to that used during four decades of negotiations in Latin America.
The refinancing deal still needs to be approved by regulators, as does the capital increase, as Gilinski’s stake increase gives it majority control.
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