Clifford Chance (CC) has been handed a role advising the ailing Co-operative Bank on its recapitalisation due to a conflict of interest at Allen & Overy (A&O) as the bank prepares to float next year.
CC capital markets partner Iain Hunter and insurance and corporate partner Hillary Evenett are advising the bank on its recapitalisation after A&O’s dual role as adviser to the Co-operative Group and its banking arm came under question in light of bondholder action that will now see a group of hedge funds take over a 70% stake in the bank.
The Co-op has been in negotiations after it emerged in June that its bank had a £1.5bn capital deficit due to non-performing loans.
CC’s role comes after Shearman & Sterling secured a significant victory for the bondholders led by Silver Point Capital and Aurelius Capital Management, under which they take a controlling stake in the bank instead of the 25% first on offer. Shearman’s financial regulatory head Barney Reynolds, corporate partners Laurence Levy and Jeremy Kutner, acquisition finance partners Anthony Ward and Clifford Atkins and bankruptcy partner Soloman Noh led on the deal.
CC has advised the Co-op in the past, including on its £750m acquisition of Lloyds Banking Group branches. That deal involved the Co-op taking over 632 branches of Lloyds Banking Group for £350m up front with an additional contingent payment of £400m depending on performance. Evenett also led in that instance alongside corporate partner Mark Poulton.0
CC was initially called in by the Co-op to handle a shareholder relationship agreement between the bank and the Co-op Group in early October. The role has now been extended to cover other contractual provisions, an under-writing agreement and a review of other documentation. CC is viewed as strongly placed if as expected the bank conducts an initial public offering next year.
A&O will continue to advise the Co-op led by partners Mark Sterling and Richard Slynn, who were both unavailable for comment at the time of writing. The Magic Circle firm continues to advise both the group and the bank, though one adviser said that A&O’s dual role will be under further scrutiny after the reorganisation of Co-op closes in December, when 70% of the bank’s ownership goes to bondholders.
Other advisers on the deal include Linklaters, which has been involved in the project since May. The City giant had initially advised a syndicate of lending banks to the Co-op Group and has subsequently undertaken several other substantive roles for financial advisers and pension trustees. Addleshaw Goddard has provided support for the Co-op on data rooms and intra group documentation between the bank and group.
Given the change of ownership of the bank, a new general counsel (GC) is set to be appointed to start before the end of November. The Co-op has indicated that the roles of all advisers to the group and banks will be reviewed by the new bank GC and Asher. The reorganisation of the group is also set to lead to the creation of two separate in-house legal teams.