Metro Bank Holdings Plc has clinched a £925 million ($1.1 billion) financing package, a deal that will impose a 40% haircut on some bondholders and see Colombian financier Jaime Gilinski take a controlling interest.
(Bloomberg) — Metro Bank Holdings Plc has clinched a £925 million ($1.1 billion) financing package, a deal that will impose a 40% haircut on some bondholders and see Colombian financier Jaime Gilinski take a controlling interest.
The agreement buys the British retail and commercial bank some much-needed breathing space after a tumultuous week that saw its share price whipsaw and consulting firm EY approach a number of lenders to submit offers.
The package consists of a £325 million capital raise and £600 million of debt refinancing, the bank said in a statement, confirming an earlier Bloomberg report. The fresh capital is provided primarily by existing investors and involves £150 million of new equity — at a price about a third below Friday’s close — and £175 million of new bail-in bonds due in 2028.
“The package announced today enables the bank to pursue growth and build on the foundational work undertaken over the past three years,” Gilinski said in the statement. “I have been an active investor in Metro Bank since 2019.”
Metro Bank shares rose 11% at 8:30 a.m. in London. The lender’s tier 2 bonds gained 7.4 pence.
The lender, which had 76 branches, 2.8 million customer accounts and £22 billion of total assets at the end of June, opened its doors in 2010 and is one of the most prominent British challenger banks that emerged to take on incumbents such as Barclays Plc and Lloyds Banking Group Plc. While others focused on expanding their online banking offerings, the firm has become known for building a branch network, including in expensive locations like the King’s Road in Chelsea.
But a series of missteps have hobbled investor sentiment. In early 2019 the bank disclosed it had been mistakenly applying a risk weighting that was too low on some of its mortgages. That led to a months-long selloff in its shares along with high-level departures and regulatory fines.
Last month, another selloff began after the lender said it had yet to convince the Prudential Regulation Authority, the UK’s bank supervisor, to let it use an internal model for calculating risk-weighted assets that would likely boost the firm’s capital ratios despite years of lobbying. That left executives racing to figure out how to fill the impending hole on its balance sheet, having sounded out existing investors in the summer about potential options for raising capital.
The new package means Metro Bank “survives to fight another day in an independent capacity,” Goodbody analyst John Cronin said in a note. “But this is far from an ideal outcome for the majority of shareholders and debtholders.”
The equity raise will be led by Gilinski’s Spaldy Investments, Metro Bank’s largest shareholder, which is contributing £102 million. Spaldy will become the controlling shareholder of Metro Bank with a stake of about 53%, up from 9.2%. The rights issue will be at 30 pence a share.
As part of the deal, Metro will force a 40% writedown of the £250 million of tier 2 bonds — the most junior in its capital structure — and extend them through to 2034.
While Metro is one of the biggest banks in the UK to force losses on creditors since the financial crisis, it’s not the first time subordinated bondholders of British banks have been confronted with steep losses. In 2010, taxpayer-owned banks Northern Rock and Bradford & Bingley bought back £2.4 billion of their subordinated debt at large discounts, imposing £1.5 billion of losses on investors, according to a report by the National Audit Office.
Metro’s £350 million of senior bonds that counts toward MREL, or Minimum Requirement for Own Funds and Eligible Liabilities, will all be extended to 2028. Existing investors will also provide an additional £175 million of such bonds.
The bank wants to apply an extra haircut on both bonds if less than 75% of the investors sign up to the deal by Friday.
Metro Bank said it is also in discussions regarding an asset sale of as much as £3 billion of residential mortgages, which would reduce risk-weighted assets by £1 billion.
The lender also said the agreement would:
- deliver a pro forma CET1 ratio in excess of 13% as of June 30, 2023 and an MREL ratio in excess of 21.5%;
- support Metro Bank’s delivery of return on tangible equity in excess of 9% in 2025 and low double-digit to mid-teens over the medium term.
The PRA said in a separate statement it welcomed the move.
Read More: Metro Bank’s Hectic Week Came After Months of Slow-Burn Concern
Willett Advisors LLC, the investment arm for the personal and philanthropic assets of Michael Bloomberg, founder and majority owner of Bloomberg News parent Bloomberg LP, held shares in Metro Bank as of November 2021, according to a regulatory filing.
–With assistance from Ezra Fieser, Katherine Griffiths, Giulia Morpurgo and Neil Callanan.
(Adds share and bond price in fifth paragraph, details throughout)
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