EMEA Restructuring: Metro Bank's recapitalisation

IFR Awards 2023
3 min read
Christopher Spink

Fast solution

Metro Bank was not the biggest lender to be rescued in 2023, but the deal that ensured the UK challenger bank’s survival, struck late on Sunday October 8, was neater than those that saved its larger brethren, most of which required significant state intervention to remain viable.

Metro’s was a more markets-based solution, which saw its junior bonds partially bailed in at the same time as a major shareholder, Colombian billionaire Jaime Gilinski Bacal, agreed to put in £102m of new equity giving him a majority stake.

Earlier in the year chief executive Dan Frumkin admitted to a looming problem with the bank’s two bonds, since a first call was due in October 2024 on the more senior instrument.

Both notes had slipped to record low cash prices by early October 2023, with the £350m 9.5% October 2025 senior notes offered at around 60 pence in the pound and the £250m 9.139% June 2028 subordinated bonds touching 30 pence.

Metro’s woes intensified on Thursday October 5 after a report that the bank, only set up in 2010, was seeking a substantial capital increase. Over a frantic weekend, Morgan Stanley, assisted by RBC and Moelis, led negotiations with bondholders, shareholders, regulators and others.

Balancing the priorities of all these parties was far from easy. A large part of the pain fell on those holding the 2028 junior notes, which were owned by a group led by Caius Capital, Kite Lake and Varde Partners. They agreed to a 40% haircut via an exchange for a new 10-year Tier 2 instrument with a 14% coupon.

The Caius group, advised by PJT Partners, were also investors in the 2025 senior notes and swapped their holdings on a par basis for a new April 2028 MREL-eligible instrument with an enhanced 12% coupon. Another £175m of these notes were issued as well.

“You were talking about three types of investors: equity, subordinated, MREL. Each wanted something to the detriment of the others, so [the solution] had to be deemed fair,” said Alex Menounos, co-head of EMEA fixed income capital markets at Morgan Stanley.

And quickly cobbling together a lasting solution “was logistically a miracle”, he said.

Earlier in the weekend, white knight potential bidders had been suggested but an internal solution was preferred. Overall £600m of debt was refinanced and £325m of new capital raised: £150m of equity, largely placed with Gilinski; and the £175m of MREL bonds.

“The success of this trade is clear to see: the bank is still there,” said Menounos. “This doesn’t kick the can down the road. This is the best possible outcome.”

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