Co-operative Group begins consent solicitation for 7 5/8% debentures

By Angela McDaniels

Tacoma, Wash., March 24 - Co-operative Group Ltd. began a consent solicitation for its £50 million of 7 5/8% first mortgage debenture stock due 2018, according to a society filing with the London Stock Exchange.

The society is seeking consents to delete the covenant that requires its total consolidated borrowings not to exceed 125% of its tangible consolidated net worth.

According to the society, the "entire basis upon which the financial covenant was constructed" changed when, as a consequence of the recapitalization of Co-operative Bank plc in December, the society's shareholding in the bank was reduced to 30%. The bank will therefore not be included in the full-year 2013 consolidated accounts of the society.

Holders who grant consents to remove the covenant can either keep their debenture stock and receive improved terms or tender their debenture stock for cash.

To holders who consent to the covenant removal and choose to keep their debenture stock, the society is offering to increase the coupon by 125 basis points beginning June 30, to pay a 5% premium at maturity and to insert a covenant that will oblige it to make annual valuation reports available to the debenture stockholders.

To holders who consent and choose to tender their debenture stock, the purchase price will equal the value of all remaining payments of principal and interest (before the amendments are enacted) up to and including the scheduled maturity date discounted to the settlement date at a discount rate equal to the purchase yield, minus accrued interest. The society will also pay accrued interest.

The purchase yield will be determined at 9 p.m. ET on April 17 by reference to the 5% U.K. Treasury stock due March 2018 plus 50 bps.

In both cases, the society is also offering an earlybird cash payment of 25 bps to holders who provide irrevocable voting instructions by the early deadline, noon ET on April 4.

The final deadline is 5 a.m. ET on April 14.

Holders will vote at a meeting at 5 a.m. ET on April 16 in London.

The settlement date is expected to be April 25.

Payments under the tender offer are conditioned on the extraordinary resolution being passed and the society accepting the tendered debenture stock for purchase.

The society said a special committee of the Association of British Insurers that holds about 77% of debenture stock plans to vote in favor of the extraordinary resolution either specifically or by participating in the tender offer. Within the special committee holdings, about 51% intend to submit a solicitation instruction in favor of the extraordinary resolution and 49% intend to submit a tender instruction.

The dealer manager is UBS Ltd. (+44 20 7567 0525 or mark-t.watkins@ubs.com). The registrar is Computershare Investor Services plc (+870 889 4026).

Co-operative Group is a Manchester, England-based consumer cooperative with a range of retail businesses.

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