By Laurence Fletcher
LONDON, Nov 4 (Reuters) – U.S. hedge fund Aurelius Capital
Management, which will take a stake in Co-op Bank under a rescue
plan for the British mutual lender, is also protagonist in a
lengthy and bitter court battle over Argentina’s debt default.
The New York-based investment firm is among a group of
activist investors who will swap bondholdings for equity in
Co-op Bank, which has long promoted a commitment to ethical
business practices to attract customers.
Aurelius, which will be Co-op Bank’s largest hedge fund
shareholder under the plan detailed on Monday, has a record of
litigation to resolve its disputes.
This includes the battle to force Argentina to repay $1.33
billion following its default in 2002, after funds refused to
take part in two debt restructurings.
Aurelius has fought alongside NML Capital Ltd, a unit of
Elliott Management Corp, another high-profile activist which
secured the detention of an Argentine ship in Ghana last year to
press its demand to be paid some of what it is owed.
However, a U.S. appeals court rejected on Friday their
attempt to have a stay lifted on an order requiring Argentina to
pay the $1.33 billion.
Aurelius has also recently been involved in a legal battle
over its investment in publisher Tribune Co.
Under the restructuring plan, mutually-owned Co-op Group’s
stake in the bank will be reduced to 30 percent, with no other
party holding more than 9.9 percent.
Twelve hedge funds will hold around 35 percent collectively
with Aurelius having the biggest stake. The funds will have the
opportunity to exit following a planned stock market flotation
of the bank in 2014.
A spokesman for the group of 12 hedge funds, including
Aurelius, declined detailed comment.
The change of control at Co-op Bank, which hit trouble after
running up big losses on commercial property lending, shows how
specialist investors in “distressed” debt operate in situations
that other investors judge too risky or too complex.
“They will lend money to stressed businesses, participate in
their restructuring and emerge as shareholders
post-reorganisation,” said one hedge fund investor, referring to
two other hedge funds that will take equity stakes in Co-op
Bank, Beach Point and Canyon.
Beach Point, which manages $6.7 billion in assets and looks
for what it calls “complex and misunderstood opportunities”, is
headquartered in Los Angeles and headed by Carl Goldsmith and
Scott Klein, who worked together at PostAdvisory Group.
Also prominent among Co-op Bank’s owners are
Connecticut-based Silver Point Capital.
