Constructive Vultures? Buying into Co-operative Bank Debt

Aurelius Capital Management and Silver Point Capital - two US hedge funds with 'vulture' reputations (ie buying debt to demand stringent repayment terms from already endangered creditors) have bought bonds issued by the Britannia Building Society before it was taken over by the Co-operative Bank. The bonds rank higher than the subordinated bonds and preference shares sold to small investors, who are already faced with losses as part of the bank's 'bail-in' that is intended to raise £500 million towards the bank's recapitalisation. Vulture funds act only on their own narrow self-interest but Aurelius and Silver Point have - perhaps mischieviously - attempted to excuse their behaviour by claiming: 'We are not here to cause mischief. We want to sit down with the bank and work out a consensual solution.' A 'consensual solution' to a situation where they have no definable interest in the first place. Their actions will force the bank to pay an even higher price for the recapitalisation and cause even more loss and uncertainty to the small investors who now risk higher losses if Aurelius and Silver Point's demands destabilise the bank still further.