Metro Bank won the support from 75 percent of its bondholders for a debt refinancing agreement of £600mn that was hastily agreed on the weekend to fill a hole in capital.
The UK high street lender was under pressure to strengthen its balance sheet. It had been in discussions with regulators over the past few weeks, before agreeing on the terms with investors at the weekend.
Holders of Metro’s higher-risk tier-2 bonds will be required to take a 40% cut on their investment .
Metro announced Sunday night that they had closed a deal by the end the year. The lender confirmed this on Wednesday, confirming that the agreement had the support of three quarters of bondholders. The deal capped off a turbulent week for the challenger lender, which was the first in a new crop of lenders who promised to shake-up the UK high street after the financial crisis.
The bank announced in a Wednesday stock exchange announcement that “the required number of holders both of the tier 2-instrument and the MREL-Senior instrument have committed to supporting written resolutions for approval of the debt refinancing.”
MREL (minimum requirement for own funds) and eligible liabilities is a regulatory cushion that forces banks into loss-absorbing debt. If a bank runs into trouble, its creditors will be bailed out to avoid a taxpayer bailout.
Metro said: “Supporting the debt refinancing transaction is one of key pillars for the implementation of [Sunday’s] announcement.”
The refinancing deal was reached in conjunction with a £325mn equity raise from Metro’s biggest shareholders, and £175mn new debt raised from bondholders.
The bank said that it was still in talks about selling as much as £3bn of residential mortgages. This could improve the bank’s capital position. Metro reported that a £3bn sales would reduce the bank’s risk-weighted asset by approximately £1bn.
Metro’s chief executive Dan Frumkin said to analysts on Monday that Barclays had expressed interest in buying the mortgage book.
Frumkin responded to a Barclays Analyst who asked about the possible sale: “We are genuinely interested.” . . “There are many names that you can choose from — one not too different than the name on your pay check.”
Metro’s shares have increased by 15 percent since Friday, but are down over 50 percent since it announced a month earlier that UK regulators refused to approve a new rule that would lower the capital requirements for its mortgage book and boost the bank’s profits.
Spaldy — the investment vehicle of Colombian Billionaire Jaime Gilinski Bakal — invested £103mn as part of Metro’s capital raising. This increased its stake from below 10% to 53%.
Gilinski said yesterday that he sees opportunities to use Metro to as a base for acquisitions – once costs are under control – following a playbook similar to one he used in Latin America during his four decades of dealmaking.
Gilinski has a majority stake in the company, so the equity raising must still be approved.