Yell's restructuring heralds the return of the 'London approach'

Old Lady secretly mediates on major financial restructurings to ensure approval by creditors
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The Independent Online

The Bank of England has been secretly mediating on major financial restructurings to ensure that they are approved by creditors, in a return to a 1990s policy known as the "London approach".

Most significantly, the Bank intervened in the struggle that Yell Group, the Yellow Pages publisher, faced when it pushed through amendments to the terms of its £4bn debt burden at the turn of November. The Bank's chief cashier, Andrew Bailey, made telephone calls that resulted in what a market source described as "gentle conversations" with creditors who were considering voting against the amendments.

Yell needed 95 per cent approval for the terms to be relaxed, otherwise the board would have had to go to court to secure a "scheme of arrangement". This scheme would have needed support from creditors representing only 75 per cent – about £3bn – of the debt, but would have dragged out the process.

Yell, chaired by Bob Wigley, needed a quick result on the terms in order to secure a £650m equity raising, which will ultimately ease its debt burden.

As 3 per cent of the 1,100 credit facilities could not vote on changes of debt terms according to their internal rulebooks, only a few needed to go against the proposals to derail them. Two Spanish institutions proved particularly unwilling to vote for the move, and are thought to have been fed up with major US and British banks dictating terms on a number of debt situations.

HSBC, the lead creditor to Yell, asked the Bank to intervene. The London approach allows the Bank to make informal representations in financial restructuring cases if it is asked, though it did not deal with a single instance for several years until November 2008 when the financial crisis intensified. Mr Bailey is said by one source to have dealt with "a handful" of cases since.

A senior City figure suggested that the Bank could not allow Yell's restructuring to fail because of a few errant creditors as it would set a precedent in other deals. Essentially, such games of brinkmanship, where the creditor attempts to secure better terms to agree to a tightly contested vote, would risk becoming more widespread. "It would be a poor signal for all the restructuring moves needed to deleverage UK plc," the source said, adding: "The Bank did make some calls, including to a couple of UK institutions which were playing games. It also called the Bank of Spain, which contacted two creditors."

A spokesman for the Bank confirmed that the institution had been contacted to help with discussions between Yell and its creditors.

The news that the Bank in effect secured Yell's equity raising emerges as National Express, the troubled transport group, passed its £260m rights issue. On Friday, more than two-thirds of shareholders supported the move, defying opposition from the Spanish Cosmen family. Shares closed at 334.8p on Friday, down 0.56 per cent.

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