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Not all lost for African Bank investors

Johannesburg - The Good Bank restructuring proposal of African Bank has been approved in principle by both the senior unsecured debt holder committee and the Tier II debt holder committee, the bank's curator Tom Winterboer of PwC said on Thursday.

Unsecured lender African Bank collapsed in August last year after it posted record losses and due to a lack of funding. Former SA Reserve Bank (Sarb) governor Gill Marcus placed the bank under curatorship on August 10 last year, at the same time setting out a proposal for the restructuring of African Bank. This entailed the creation of a new "Good Bank".

The salient terms of the proposal entail that senior funders - that is holders of unsecured senior notes, corporate bilateral deposits and facilities - and subordinated funders - that is holders of subordinated notes, unlisted subordinated debentures and subordinated loans - be settled in a certain way.

Two instruments issued

As part of the restructuring proposal two instruments will be issued in exchange for the subordinated funders' claims of approximately R4.4bn in African Bank.

READ: African Bank heading to JSE again

The first of these instruments would be new subordinated 10-year - non-callable for 5 years - Basel 3 compliant Tier II instruments in Good Bank that will be issued in exchange for a R1.65bn portion of the subordinated claims.

The second would be subordinated stub debt instruments in African Bank, in exchange for the remaining R2.75bn portion of the subordinated claims. These stub instruments will rank behind Sarb claims, the senior stub claims and other unsubordinated creditors of African Bank.
 
Subordinated funders will also have the opportunity to participate in the Good Bank group structure as equity holders - as an alternative to the proposal of issuing the two instruments in exchange for their claims.

Senior funders

The proposal regarding existing claims (also called "senior claims") of senior funders involves that 90% of these senior claims will be exchanged for new unsecured notes in Good Bank on economic terms that match the terms of the relevant senior claims.

The maturity would, however, be extended by the period from the date of curatorship to completion of the restructuring, plus 24 months.

The remaining 10% of the senior claims will be discharged through the issue of a new stub debt instrument in African Bank. This will be subordinated only to claims of the SA Reserve Bank (Sarb) in terms of the loan funding to be provided by Sarb to African Bank.

No further claims

As part of the settlement offers, senior funders and subordinated funders will be required to agree to have no further claims against African Bank - other than the stub claims issued to them as part of the Good Bank restructuring proposal.

Winterboer said he will continue to make further announcements related to the restructuring of African Bank in due course.

READ:Sarb reviews supervision after African Bank fail

Early in May this year African Bank announced that it continues to operate in a stable manner with total monthly collections varying between R2.075bn and R2.475bn between August 2014 and January 2015.

Total monthly disbursements have varied between R550m and R750m between August 2014 and January 2015. This is in line with the lower risk appetite and expectations, according to a statement.

At the same time it was announced that Brian Riley has been appointed as CEO designate of Good Bank and its new holding company with immediate effect.

Because of the collapse of African Bank South Africa’s banking regulator has decided to review its supervisory practices and procedures, Bloomberg reported earlier this week.

ALSO READ: African Bank appointes Good Bank CEO designate

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