September 7, 2017 / 11:03 AM / a year ago

Popular bondholders challenge Spanish bailout fund

LONDON, Sept 7 (IFR) - Disgruntled bondholders in Banco Popular have opened up a new front in their challenges to the decisions taken in early June, appealing for more information about the reasoning that put the Spanish bank in resolution.

The move saw junior bondholders bailed in on June 7 before the lender was immediately sold to Santander for a token €1, but the bondholders are contesting the decision.

Last month the group, which includes Pimco, Anchorage Capital, Algebris, Ronit Capital and Cairn Capital, launched an action against the Single Resolution Board, which had recommended to the European Commission that Popular be put into resolution.

The same group last night filed proceedings in the Spanish national court against the country’s Fund for Orderly Bank Restructuring (FROB), which was set up in 2009 to provide funds to bailout Spain’s struggling banks.

FROB provided a valuation of the bank, ahead of its resolution, that determined it was no longer viable and that junior bondholders would have to be bailed in, if €8bn of capital could not be raised immediately.

The bondholders have filed an appeal in the national court to seek clarity in how FROB reached its decision, and if necessary claim restitution for their losses.

“The FROB resolution lacked the necessary justification, which made it impossible for stakeholders to evaluate the reasons, the legal basis or the valuation underpinning the FROB resolution,” said Richard East, partner at law firm Quinn Emanuel, which is representing the bondholders.

Andersen Tax & Legal is acting as Spanish legal counsel for the bondholders.

In its earlier complaint, the bondholders had called for the SRB and EC to launch an inquiry into any leaks of regulatory information that could have caused customers to remove their deposits.

That bank run effectively hampered Popular’s sales process, being conducted by JP Morgan and Lazard, leading to its resolution and distressed sale to Santander.

Santander has already offered to pay up to €1bn in compensation to retail bondholders.

Under that scheme, Santander is offering retail holders of certain Popular subordinated debt, or equity acquired as part of its May 2016 rights issue, new subordinated debt instruments as compensation for the losses.

Up to €980m of the new bonds will be issued, paying 1% annually for seven years. The perpetual bonds can be called after seven years but if not called they will then pay 5.75% over bank spread rates. (Reporting by Christopher Spink)

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