The Co-operative Group and The Co-operative Bank Liability Management Exercise – announcement of Scheme Consideration Amounts and New Ordinary Shares Conversion Price

November 14, 2013

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY, IN OR INTO OR FROM AUSTRALIA, NEW ZEALAND, SOUTH AFRICA, JAPAN, CANADA OR SWITZERLAND OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

On 4 November 2013, Co-operative Group Limited ("Co-operative Group” or the “Group”) and The Co-operative Bank p.l.c. (“Co-operative Bank” or the “Bank”) announced their revised Recapitalisation Plan for the Co-operative Bank, including the liability management exercise to be concluded this year (the “Liability Management Exercise”).

This announcement is the announcement scheduled for release on or around 14 November 2013 under the indicative timetable relating to the Liability Management Exercise.

Background

The Liability Management Exercise includes a scheme of arrangement (the “Scheme”) in respect of 7 series of lower tier 2 subordinated notes (the “Dated Notes”) issued by the Co-operative Bank.

The full details of the Scheme will be contained in the explanatory statement and other Scheme documents scheduled to be made available to holders of the Dated Notes on or around 19 November 2013. However, the Consent and Exchange Offer Memorandum relating to the Liability Management Exercise (the “Consent and Exchange Offer Memorandum”, which is appended to and forms part of the respective prospectuses published by Co-operative Group and the Co-operative Bank on 4 November 2013) contains an overview of the Scheme, including the consideration available in the Scheme to the holders of the Dated Notes.

As noted in the Consent and Exchange Offer Memorandum, the Consideration Amounts and the New Ordinary Shares Conversion Price for the Scheme set out in the Consent and Exchange Offer Memorandum were indicative only, pending determination of the floating rate of interest applicable to the interest period commencing 18 November 2013 in respect of the Floating Rate Callable Step-up Dated Subordinated Notes due 2016 (the “2016 Notes”). That floating rate of interest has now been determined, in accordance with the terms and conditions of the 2016 Notes, as 0.997 per cent. (based on a 3-month EURIBOR rate of 0.217 per cent.). Accordingly, Co-operative Group and the Co-operative Bank are able to confirm the final Consideration Amounts and the New Ordinary Shares Conversion Price for the Scheme.

Consideration Amounts and New Ordinary Shares Conversion Price for the Scheme

The final Consideration Amounts and the New Ordinary Shares Conversion Price, in each case for the Scheme, are set out below. The Consideration Amounts do not differ from the indicative Consideration Amounts set out in the Consent and Exchange Offer Memorandum. The New Ordinary Shares Conversion Price does not differ materially from the indicative New Ordinary Shares Conversion Price set out in the Consent and Exchange Offer Memorandum.


Notes:

  1. The number of New Ordinary Shares and principal amount of Bank T2 Notes which a holder of Dated Notes will be eligible to receive in respect of its Scheme Claim will be the same irrespective of whether or not the Early Participation Threshold is achieved by the Early Participation Deadline.
  2. New sterling-denominated 11 per cent. Subordinated Notes due 2023 (ISIN: GB00BFXW0853) to be issued by the Bank.
  3. New Ordinary Shares to be issued by the Bank. If the Liability Management Exercise is successfully completed, the Group’s existing equity stake in the Bank will be converted into deferred shares and effectively reduced to nil and a total of 250,000,000 New Ordinary Shares will be issued at that time, of which:
    1. 75,000,000 (representing 30 per cent. of the total) will be issued to the Group in consideration for its fresh injection of capital into the Bank through the Liability Management Exercise and the 2014 Commitment (representing an effective subscription price of £6.16 per share);
    2. 112,500,000 (representing 45 per cent. of the total) will be issued to holders of the Dated Notes in the Scheme in exchange for their Dated Notes, to be distributed in the Scheme pro rata amongst such holders based on their respective Scheme Claims (representing, based on the total value of Scheme Claims and the number of New Ordinary Shares issued in the Scheme to holders of Dated Notes, an implied subscription price equal to the New Ordinary Shares Conversion Price). The New Ordinary Shares referred to in the table above are these 112,500,000 New Ordinary Shares; and
    3. 62,500,000 (representing the balance of 25 per cent. of the total) will be available for subscription by holders of Dated Notes pursuant to, and on the terms of, the Scheme for an aggregate consideration equal to £125 million (representing an effective subscription price of £2.00 per share).
  4. A Holder’s claim in the Scheme (its “Scheme Claim”) will be equal to the sum of (i) the aggregate principal amount outstanding of such Holder’s Dated Notes and (ii) the accrued and unpaid interest on such Dated Notes up to (and including) the Scheme Record Date (expected to be 10 December 2013), provided that a Holder’s Scheme Claim in respect of Floating Rate Callable Step-up Dated Subordinated Notes due 2016 (ISIN: XS0254625998) (which are denominated in euro) shall be the Sterling-Equivalent of such sum, calculated on the basis of an exchange rate of £0.85644 per €1.00.

Accordingly, the Scheme Consideration for each holder of Dated Notes will be determined as follows.

Scheme Consideration: number of New Ordinary Shares

The number of New Ordinary Shares to which a Holder will (if the Scheme is settled) be entitled based on its Scheme Claim will be calculated by:

  1. multiplying such Holder’s Scheme Claim by 89.737 per cent.; and
  2. dividing the resulting figure by £7.7718276 (being the Conversion Price for the New Ordinary Shares) and, if necessary, rounding such figure down to the nearest whole number of New Ordinary Shares (any fractional amount so rounded down will be discarded and the Holder shall have no entitlement in respect thereof).
Scheme Consideration: principal amount of Bank T2 Notes

The principal amount of Bank T2 Notes to which a Holder will (if the Scheme is settled) be entitled based on its Scheme Claim will be calculated by multiplying such Holder’s Scheme Claim by 10.263 per cent. and, if necessary, rounding the resulting figure down to the nearest whole multiple of £10 (being the minimum denomination of the Bank T2 Notes) (any amount so rounded down will be discarded and the Holder shall have no entitlement in respect thereof).

Defined terms

Capitalised terms used and not otherwise defined in this announcement have the meanings given in the Consent and Exchange Offer Memorandum.


Media enquiries

The Co-operative Group: Russ Brady – 07880 784442

Tulchan Communications: 020 7353 4200


Investor enquiries:

The Co-operative Bank: 0800 7312310 www.co-operative.coop/Bondholders/


Disclaimers

Neither this announcement, the publication in which it is contained nor any copy of it may be taken, transmitted or distributed, directly or indirectly, into Australia, New Zealand, South Africa, Japan, Canada or Switzerland or any jurisdiction where to do so would constitute a violation of the relevant laws of such jurisdiction. Any failure to comply with this restriction may constitute a violation of securities law in those jurisdictions. The distribution of this document in other jurisdictions may also be restricted by law and persons into whose possession this document comes should inform themselves about, and observe, any such restrictions.

This announcement does not constitute or form part of any offer or invitation to sell or issue, or any solicitation of any offer to purchase or subscribe for any shares or any other securities nor shall it (or any part of it) or the fact of its distribution, form the basis of, or be relied on in connection with, any contract therefore. The availability of the transactions described herein and the distribution of this announcement in certain jurisdictions may be restricted by law and persons into whose possession any document or other information referred to herein comes should inform themselves about, and observe, any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

In particular, this announcement does not constitute an offer for sale of, or a solicitation to purchase or subscribe for, any securities in the United States. No securities of the Group or the Bank have been, or will be, registered under the US Securities Act of 1933, as amended (the "Securities Act"), and securities of the Group or the Bank may not be offered or sold in the United States absent an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and in compliance with any applicable securities laws of any state or other jurisdiction of the United States. The Group and the Bank securities will be offered by means of a prospectus or Scheme document that may be obtained from the Bank and/or the Group, as applicable.

This announcement is an advertisement and not a prospectus. Investors should not make any investment decision regarding any securities referred to in this announcement or in the Liability Management Exercise except on the basis of information contained in the prospectuses and Consent and Exchange Offer Memorandum published by The Group and the Bank and the Scheme documents made available by the Bank in due course. The Group and the Bank expressly reserve the right to adjust or amend the terms of the Liability Management Exercise and the securities.

This announcement has been issued by and is the sole responsibility of the Co-operative Bank and the Co-operative Group.