Metro Bank bondholders give approval to refinancing deal

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Metro Bank has won the support of 75 per cent of its bondholders to carry out a £600mn debt refinancing deal that it hastily agreed over the weekend in order to fill a capital hole.

The UK high-street lender had been under pressure to bolster its balance sheet and was in talks with regulators in recent weeks before agreeing the terms with investors over the weekend.

The refinancing package involves holders of Metro’s riskier tier 2 bonds taking a 40 per cent haircut on their investments. 

Metro announced on Sunday night that it had struck a deal that was expected to close by the end of the year, which the lender confirmed on Wednesday had received the required backing of three-quarters of bondholders. The agreement capped a torrid week for the challenger bank, the first of a crop of lenders that promised to shake up the UK high street in the wake of the financial crisis.

“The required number of holders of both the tier 2 instrument and the MREL senior instrument are committed to support 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 if a bank gets into trouble its creditors are bailed in to prevent a taxpayer bailout.

Metro added: “Support for the debt refinancing is one of the key pillars to the implementation of the transaction set out in the [Sunday] announcement.”

The refinancing deal was agreed in conjunction with a £325mn capital raise, split between £150mn of fresh equity from Metro’s largest shareholders and £175mn of new debt from bondholders.

The bank has said it is also still in discussions about selling off as much as £3bn in residential mortgages, a move that could further improve its capital position. A £3bn sale would reduce its risk-weighted assets by about £1bn, Metro said.

On Monday, Metro chief executive Dan Frumkin told analysts that there was already interest in the mortgage book, and implied Barclays was a potential buyer.

Asked by a Barclays analyst about the potential sale, Frumkin replied: “We have genuine interest . . . across a range of names — [one not too] dissimilar to what’s on your pay cheque.”

Metro’s shares are up 15 per cent since Friday’s close, though are down more than 50 per cent since it disclosed a month ago that UK regulators had declined to approve a change that would have lowered the capital requirements on its mortgage book, and thereby boosted the bank’s profitability.

As part of the capital raise, Metro’s biggest shareholder — Spaldy, the investment vehicle of Colombian billionaire Jaime Gilinski Bacal — injected £103mn and took its stake from just below 10 per cent to 53 per cent.

Yesterday, Gilinski told the Financial Times that he saw opportunities to use Metro as a base for acquisitions — once costs are brought under control — following a similar playbook to the one he has used during four decades of dealmaking in Latin America.

The refinance deal still needs to be approved by regulators, as does the equity raise, given Gilinski’s increased stake gives him majority control.