December 02, 2009
Another UK CoCo Announced, With Huge Implications
Posted by Rob Beard

I'm jumping a bit ahead in my planned blogging schedule to bring news of a second announced CoCo offering––this time resulting from a planned merger between Yorkshire Building Society and Chelsea Building Society (Building Societies compete with banks in the UK for personal banking services; they are similar to US S&Ls).  The boards have reached an agreement with Chelsea's subordinated debt holders to exchange Chelsea's outstanding subordinated debt for CoCos to be issued by the Yorkshire on completion of the merger.

Surely the fantastic market response to Lloyds's CoCos has been encouraging to Yorkshire and Chelsea's subordinated bondholders.  What's most interesting about the Yorkshire CoCos, however, is that, unlike Lloyds's CoCos, they are being issued absent any threat from the EC that Chelsea would have to stop coupon payments on subordinated debt.

In other words, we have a CoCo that wasn't a forced exchange.  It will be interesting to see how it prices.  The Yorkshire CoCo may have profound effects on the market.

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