LONDON 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.
(Additional reporting by Matt Scuffham; editing by David Stamp)