Can African Bank rise from the ashes?

The planned launch of the new “Good Bank” from the ashes of African Bank is still set for April 4 after a milestone was achieved last week.

Noteholders, the owners of African Bank debt worth R44 billion, agreed to exchange all their notes for new Good Bank notes worth R36 billion.

The deal’s senior noteholders also agreed that their African Bank debt be converted into a new set of instruments at 80% of the original R44 billion value.

They are getting compensated for this discount by an upfront cash payment worth 10% of their original claim – as well as a claim on the wreckage that is being left out of Good Bank, which is called Residual Bank. So these senior noteholders could lose up to R3.6 billion in total.

This leaves approval from Treasury as the last major regulatory hurdle to get Good Bank off the ground. Treasury is considering whether to approve the transaction, and a window for public comment is open until March 10.

Good Bank is where existing depositors at African Bank, as well as employees, will end up.

Senior noteholders holding 95% of outstanding senior notes voted in favour of the deal, African Bank’s curator, Tom Winterboer, said last week.

The owners of subordinated debt once worth more than R4 billion get R1.5 billion in new Good Bank debt, and an upfront cash payment totalling R165 million and claims on Residual Bank.

Holders of 99.99% of these notes voted for the deal.

African Bank entered curatorship in August 2014 as the most visible corporate casualty of the explosion in unsecured lending over the preceding decade.

As ever more loans went bad, the bank eventually folded and had to be partially bailed out to the tune of R10 billion by government and a consortium of other banks after being put under curatorship by the governor of the Reserve Bank.

The bailout didn’t cover 100% of African Bank’s debts – something that led ratings agency Moody’s to downgrade all South African banks.

According to the agency’s formulas, full bailouts for banks are a default assumption when they get a credit rating.