21 March 2014
Dear Mr Osorio
Thankyou for your replies. I am sure you are aware that a large number of Note holders do not feel they have been treated fairly and have felt forced to either sell in the market or accept the offer. The announcement of the Retail Offer yesterday does not address the serious concerns I had raised. I would therefore ask you to consider and respond to the following questions and proposed solution moving forward.
1. If, as you say, the offers are ‘entirely voluntary’ why have you sought to rewrite the contractual terms of the Notes in your RNS’s and offer documentation?
For example the contractual terms of the Notes clearly define a Capital Disqualification Event occurs if the Notes cease to count for any ‘‘stress test’’ applied by the FSA in respect of the Consolidated Core Tier 1 Ratio whereas the RNS and Offer Memorandum rewrites this key definition as any “stress test” and any “stress test” in respect of core capital.
Leading Counsel, [NAME], has advised that any call would be unlawful and that your presentation of the regulatory call risk in the RNS and EOM amounts to rewriting the terms as you now wish they had been drafted.
2. If, as you say, the offer levels are ‘comparable on average with those prevailing before the announcement of our full year results on 13 February this year’ why is the Retail Offer to the highest coupon ECNs 128.5 compared to the quoted LSE offer price of 175 for the 6 months prior to the results announcement?
3. If, as you say, ‘the Group values the support of its retail investors’ why did you not obtain an independent fairness opinion on the offers?
4. Why did you disseminate negative price sensitive information on 13 Feb via a closed analyst call at a time when you must have been taking advice on an unannounced LME and the price you would offer in that LME?
5. Why have you been dishonestly telling dissenting institutional Note holders that I am the only other person to have questioned the legality of your threat of redeeming the Notes at par?
6. Why can you not state how much cash is available for the retail offer?
7. Why have you created a priority list for the Retail Offer which means retail holders could be excluded from the offer but then be highest priority for redemption at par because the Notes they hold were accepted for exchange in the institutional offer?
8. Why is the Retail Offer not drafted in plain English and what does the following key sentence from the Retail Offer announcement mean?
If the Regulatory Call Right were, by its terms, ever to become exercisable and the relevant Offeror wished to make use of it, LBG and the Offerors currently intend that they would prioritise the redemption of those Series of Securities some part of which Series is accepted for purchase in the Offers and accepted for exchange in the Exchange Offers or which rank in the Tender Priority or (in respect of the Exchange Offers) the exchange priority pursuant to such Exchange Offers, ahead of those Series of Securities which have been so accepted for exchange or purchase except if the relevant Series of Securities is pro-rated by the relevant offeror pursuant to the relevant Exchange Offer.
9. In view of your statement that you value the support of your retail investors, recognition of the uncertainty you have created over the ‘Regulatory Par Call Right’ and the fact that the Retail Offer to holders of he high coupon ECNs is at such a low level that investors will suffer a massive loss of income if they accept and reinvest will you agree to a modification of the terms of the Notes to remove the uncertainty by ensuring that they will count for future stress tests?
As previously discussed the Notes will count for future stress tests if the terms are modified such that the conversion trigger is raised to 7% and realigned to Common Equity Tier 1 Capital. I wrote to Andrew Bailey at the PRA outlining this proposal before announcement of the Liability Management Exercise. He has now responded with his only stated reservation being a perceived difficulty in obtaining sufficient consent across the different types of Note holder. However I am confident that I could help achieve the passing of the necessary votes and have recently proved, in my role in the successful restructuring of Co-op Bank, that such votes can be passed. Bond issuers and regulators need to appreciate that the investor landscape has been changed through the internet and social media and it is now possible for investors of all types to contact each other and exchange information such that participation levels not previously thought to be possible can be achieved.
I look forward to hearing from you.