Preference shares -- keeping it simple

[ChrisNix]

I agree that a court should at the very least insist that assets+remaining capital was sufficient to cover liabilities in order to allow early repayment of prefs. If not, the bank would be at risk of becoming insolvent and the court could not allow that. However, as Terry has pointed out, this does not appear to be a sufficient condition in order to repay the prefs. The articles clearly state that prefs can only be repaid "out of the surplus assets remaining after payment, of the Company’s liabilities", i.e. not after some kind of accounting exercise to demonstrate that liabilities can be met following a reduction of capital. The way I have interpreted the clause in the past is that some sort of liquidation process must be in progress and the prefs can only be repaid after all liabilities have been fully settled. I agree that it is not at all beyond the realms of possibility that a court might allow the prefs to be repaid before liabilities, as they the court may be persuaded that this was the intention of the clause (obvious intention), but why are you so certain that a court would accept this interpretation, as opposed to mine?

I have sold all of our SAN (and subsequently bought AV.A) as I considered the downside risk on SAN far too large given the large premium. Nonetheless I am interested to see what happens next with these. Santander UK pass a resolution each year to allow the buy back of their prefs, so it is possible that a tender may be forthcoming.

Paul,

I realise the legal meaning of the articles is confusing to those unfamiliar with the way case law and the companies act interact. However, the case law is clear. In fact, even in instances where the words "or return of capital" were omitted in the articles the courts have made it clear this is no bar and that in a capital return the order of priority in a wind up is followed. Needless to say, because there is no actual winding up, in such returns the interpretation of phrases like "after payment of creditors" (which BTW are issuer creditors only, not group ones), is not literal.

Please don't shoot the messenger!

Chris

[ChrisNix]

So, although the literal interpretation of the articles is not followed the economic imperative is properly respected.

It is simply incontestable that a court would rule this way.

Economic imperative as far as creditors are concerned, but the clause is not just about the protection of creditors, it is about the protection of pref holders. Pref holders have much greater protection against early repayment if creditors have to be completely paid off first.

Paul,

The court is concerned to protect the creditors, which pre-return benefit from a larger overall (ords plus prefs) equity buffer.

The purpose of these clauses is to establish that the prefs are protected by the equity buffers of the ords and any pref capital which is subordinate to the prefs in a wind up. It does this by requiring that the prefs be repaid all their capital before such subordinate capital receives anything. Although not stated, the prefs can by a 75% majority agree to allow the ords to receive a capital return without themselves receiving one.

Chris

[GoSeigen]

This is what the Articles say:

"On a distribution of assets on a winding-up of the Company or return of capital (other than on a redemption or purchase by the Company of any of its share capital), members holding Preference Shares shall in respect thereof be entitled to receive, out of the surplus assets remaining after payment of the Company’s liabilities, an amount equal to the amount paid up or credited as paid up on the Preference Shares together with such premium (if any) as may be determined by the board prior to allotment thereof…"

Additionally, Articles were adopted on 28 April 1994 alongside the authorising resolution for the preference shares which contained the following:


"Reduction of Capital
47. Subject to the provisions of the Companies Acts and to any rights conferred on the holders of any class of shares, the Company may in any way by special resolution reduce its share capital, any capital redemption reserve and any share premium account."


The rights in reduction of capital are clear. The quantum to be paid seems to me covered by the "return of capital" wording. Although this clause speaks of "payment" of the Company's liabilities, I don't think a court would have any problem requiring the Company to hold in reserve sufficient capital to pay creditors if the return of capital occurred before winding up, and I've no doubt that creditors would demand it when such a scheme was to be sanctioned.

I agree that a court should at the very least insist that assets+remaining capital was sufficient to cover liabilities in order to allow early repayment of prefs. If not, the bank would be at risk of becoming insolvent and the court could not allow that. However, as Terry has pointed out, this does not appear to be a sufficient condition in order to repay the prefs. The articles clearly state that prefs can only be repaid "out of the surplus assets remaining after payment, of the Company’s liabilities",

As we're now discussing the meaning of individual words and carrying out a fine construction of the terms, I'm going to be a little pedantic: the articles do not state that prefs can only be repaid but that "on a distribution of assets [...] they shall be entitled to receive, out of the surplus assets remaining".

So:
1. this clause is more about how much they may receive, than about what may and may not be done [contrast underlined words above]. You don't have to accept this but I do given the number of documents I've examined.
2. I deliberately chose the particular limbs quoted above and emboldened the word "assets", because it is interesting that the same word is used twice. Read the clause really thoroughly and notice that.
3. In effect I am claiming that the limb "or return of capital" has been incorrectly placed in conjunction with the "out of the surplus assets" subordinate clause: the corollary being that the intention was for the latter to apply only to the "distribution of assets" limb. I am as confident of this as I was that the ECN clause had a mistake, which is to say not very confident at all, but I think it's a viable ECN-type argument.


Now let's examine how well my argument stands up. If it is true, one would predict that similar wording to the one I propose would be present in other companies' articles. I shall look at one or two now...

-NWBD Articles "out of the assets available for distribution amongst the members": covers both the winding-up cases and the non-winding-up cases.
-HBOS "plain English" Articles: "If there is a return of capital each HBOS Preference Shareholder will be entitled [...] from the Company’s assets which can be distributed to the shareholders [...]". Again, reference to distributable assets.
-Commercial Union (aka Aviva): The amount is not qualified or restricted by any mention of distributable assets or prior payment of liabilities.
-General Accident (aka Aviva): There are separate clauses for the winding-up case: "[...] out of the surplus assets of the company after payment of its liabilities [...]" and non-winding up case, where payment is not qualified or limited.

Those are the first four that I looked up. All agree with my hypothesis. I therefore upgrade my confidence level to slightly more confident than in the ECN case!

i.e. not after some kind of accounting exercise to demonstrate that liabilities can be met following a reduction of capital. The way I have interpreted the clause in the past is that some sort of liquidation process must be in progress and the prefs can only be repaid after all liabilities have been fully settled. I agree that it is not at all beyond the realms of possibility that a court might allow the prefs to be repaid before liabilities, as they the court may be persuaded that this was the intention of the clause (obvious intention), but why are you so certain that a court would accept this interpretation, as opposed to mine?

I'm not very certain. But I have read a lot of Articles in my research and know not to always accept the literal meaning of the words but to try to determine what would actually have been intended. I believe that was the lesson to me from the ECN case. I have seen and documented on this site several cases where there are glaring errors in Articles. The misplacement of a subordinate clause is well within the bounds of what I have seen...

I have sold all of our SAN (and subsequently bought AV.A) as I considered the downside risk on SAN far too large given the large premium. Nonetheless I am interested to see what happens next with these. Santander UK pass a resolution each year to allow the buy back of their prefs, so it is possible that a tender may be forthcoming.

I haven't looked at the value of most prefs seriously yet. I'm kind of waiting for the first company after Aviva to make its move. In the meantime pref prices drift down which is a positive in many ways.

GS
P.S. Sorry a bit long. Was doing some of the above in real time...

[Tara]

NWBD Articles "out of the assets available for distribution amongst the members": covers both the winding-up cases and the non-winding-up cases.

Does this mean that there is some risk now with NWBD being cancelled at par ? I thought that NWBD could not be cancelled at par ?

[GoSeigen]

NWBD Articles "out of the assets available for distribution amongst the members": covers both the winding-up cases and the non-winding-up cases.

Does this mean that there is some risk now with NWBD being cancelled at par ? I thought that NWBD could not be cancelled at par ?

Hi Tara, welcome to this forum!


Repayment/cancellation of NWBD via a Capital Reduction has to be put to preference share holders as a class in a special resolution:

https://www.lemonfool.co.uk/viewtopic.php?p=140844#p140844
3. I concluded that NWBD holders always had the right to a separate special resolution in the case of a reduction of the paid up capital of NWBD. This right is in the 1995 Articles Clause 51 (page 28), in the Plain English 1996 Articles in Clause 67 and in the 2010 Articles where you have noted it.


Please note that the philosophy of this forum is not to rely on the opinion of anyone here but to do your own research.

GS

[hiriskpaul]

I agree that a court should at the very least insist that assets+remaining capital was sufficient to cover liabilities in order to allow early repayment of prefs. If not, the bank would be at risk of becoming insolvent and the court could not allow that. However, as Terry has pointed out, this does not appear to be a sufficient condition in order to repay the prefs. The articles clearly state that prefs can only be repaid "out of the surplus assets remaining after payment, of the Company’s liabilities", i.e. not after some kind of accounting exercise to demonstrate that liabilities can be met following a reduction of capital. The way I have interpreted the clause in the past is that some sort of liquidation process must be in progress and the prefs can only be repaid after all liabilities have been fully settled. I agree that it is not at all beyond the realms of possibility that a court might allow the prefs to be repaid before liabilities, as they the court may be persuaded that this was the intention of the clause (obvious intention), but why are you so certain that a court would accept this interpretation, as opposed to mine?

I have sold all of our SAN (and subsequently bought AV.A) as I considered the downside risk on SAN far too large given the large premium. Nonetheless I am interested to see what happens next with these. Santander UK pass a resolution each year to allow the buy back of their prefs, so it is possible that a tender may be forthcoming.

Paul,

I realise the legal meaning of the articles is confusing to those unfamiliar with the way case law and the companies act interact. However, the case law is clear. In fact, even in instances where the words "or return of capital" were omitted in the articles the courts have made it clear this is no bar and that in a capital return the order of priority in a wind up is followed. Needless to say, because there is no actual winding up, in such returns the interpretation of phrases like "after payment of creditors" (which BTW are issuer creditors only, not group ones), is not literal.

In summary then, you say SAN can be repaid at par without a class vote via court sanctioned capital reduction as case law overrides the literal reading of the articles. GS suggests there may be an infelicity in the articles anyway. The problem I have with this is that I am sure case law can also be found to support the view that a class vote would be required. There was case law supporting bond holders in the Lloyds ECN declaratory judgement, but we still lost in the SC. Then we throw into the mix John Hemming's assertion that capital reduction without a class vote is against EU law (now UK law?).

Altogether this is a tough situation for private investors to find themselves in as I am sure a good case could be made in court to support the position that a class vote is required to approve capital reduction of prefs. However, the outcome of court action looks entirely unpredictable to me as I lack sufficient case law knowledge to make any kind of judgement either way.

I find a few other things strange about the current situation, especially with respect to the high dividend payers such as SAN. The current price is over 170p, which is ludicrous if the situation is as certain as you and GS think it is. Most of SAN will be in the hands of institutions with pockets deep enough to obtain expert legal advice. In which case the institutional holders would have already attempted to dump their shares and the price would have collapsed, yet this has not happened, so the advice must be that the legal situation is uncertain, or not sufficiently certain to lead to a significant price correction. The other thing which is odd is why Santander UK have not already gone for capital reduction. As the ords are entirely in the hands of Banco Santander and Santander UK are well capitalised it should be a simple matter to go for capital reduction and repay the prefs. Banco Santander are well known not to be investor/creditor friendly, so I cannot see reputational damage being an excuse.

Please don't shoot the messenger!

I will not be doing that - alternative views are valuable. Thank you (and GS) for posting your arguments.

[GoSeigen]

I agree that a court should at the very least insist that assets+remaining capital was sufficient to cover liabilities in order to allow early repayment of prefs. If not, the bank would be at risk of becoming insolvent and the court could not allow that. However, as Terry has pointed out, this does not appear to be a sufficient condition in order to repay the prefs. The articles clearly state that prefs can only be repaid "out of the surplus assets remaining after payment, of the Company’s liabilities", i.e. not after some kind of accounting exercise to demonstrate that liabilities can be met following a reduction of capital. The way I have interpreted the clause in the past is that some sort of liquidation process must be in progress and the prefs can only be repaid after all liabilities have been fully settled. I agree that it is not at all beyond the realms of possibility that a court might allow the prefs to be repaid before liabilities, as they the court may be persuaded that this was the intention of the clause (obvious intention), but why are you so certain that a court would accept this interpretation, as opposed to mine?

I have sold all of our SAN (and subsequently bought AV.A) as I considered the downside risk on SAN far too large given the large premium. Nonetheless I am interested to see what happens next with these. Santander UK pass a resolution each year to allow the buy back of their prefs, so it is possible that a tender may be forthcoming.

Paul,

I realise the legal meaning of the articles is confusing to those unfamiliar with the way case law and the companies act interact. However, the case law is clear. In fact, even in instances where the words "or return of capital" were omitted in the articles the courts have made it clear this is no bar and that in a capital return the order of priority in a wind up is followed. Needless to say, because there is no actual winding up, in such returns the interpretation of phrases like "after payment of creditors" (which BTW are issuer creditors only, not group ones), is not literal.

In summary then, you say SAN can be repaid at par without a class vote via court sanctioned capital reduction as case law overrides the literal reading of the articles. GS suggests there may be an infelicity in the articles anyway. The problem I have with this is that I am sure case law can also be found to support the view that a class vote would be required. There was case law supporting bond holders in the Lloyds ECN declaratory judgement, but we still lost in the SC. Then we throw into the mix John Hemming's assertion that capital reduction without a class vote is against EU law (now UK law?).

John Hemming has not given any evidence for this AFAIR. When asked what change he would suggest to the CA2006 his suggestion was completely in line with the law as it stands. I can look for the relevant posts if you wish. I'm pretty sure Chris has commented on it somewhere too.

Altogether this is a tough situation for private investors to find themselves in as I am sure a good case could be made in court to support the position that a class vote is required to approve capital reduction of prefs. However, the outcome of court action looks entirely unpredictable to me as I lack sufficient case law knowledge to make any kind of judgement either way.

I find a few other things strange about the current situation, especially with respect to the high dividend payers such as SAN. The current price is over 170p, which is ludicrous if the situation is as certain as you and GS think it is.

As I have said I also do not find the situation certain in the case of SAN.

Looking at the pref market in general I think my assessment of pref rights in a Capital Reduction is rather incompatible with prices being where they are. I would be comfortable with buying at a yield ensuring break-even on a par repayment three years from now, (around 120% of par?), until the situation is made clearer by some action or prolonged inaction! I don't think this is terribly different to Paul's view above.

Most of SAN will be in the hands of institutions with pockets deep enough to obtain expert legal advice. In which case the institutional holders would have already attempted to dump their shares and the price would have collapsed, yet this has not happened, so the advice must be that the legal situation is uncertain, or not sufficiently certain to lead to a significant price correction. The other thing which is odd is why Santander UK have not already gone for capital reduction. As the ords are entirely in the hands of Banco Santander and Santander UK are well capitalised it should be a simple matter to go for capital reduction and repay the prefs. Banco Santander are well known not to be investor/creditor friendly, so I cannot see reputational damage being an excuse.

The pricing certainly raises questions. One obvious one is whether the Capital Reduction clause was removed from the Articles deliberately in 2010? I find that hard to believe because I have seen it in most Articles but you never know. Has anyone asked Santander the question yet? Don't make me do it please!! I have no interest in these prefs so have not thoroughly researched them. My comments earlier were confined to the narrow context of Paul's question.


GS

[ChrisNix]

In summary then, you say SAN can be repaid at par without a class vote via court sanctioned capital reduction as case law overrides the literal reading of the articles. GS suggests there may be an infelicity in the articles anyway. The problem I have with this is that I am sure case law can also be found to support the view that a class vote would be required. There was case law supporting bond holders in the Lloyds ECN declaratory judgement, but we still lost in the SC.

Altogether this is a tough situation for private investors to find themselves in as I am sure a good case could be made in court to support the position that a class vote is required to approve capital reduction of prefs. However, the outcome of court action looks entirely unpredictable to me as I lack sufficient case law knowledge to make any kind of judgement either way.

I find a few other things strange about the current situation, especially with respect to the high dividend payers such as SAN. The current price is over 170p, which is ludicrous if the situation is as certain as you and GS think it is.

As I have said I also do not find the situation certain in the case of SAN.

Looking at the pref market in general I think my assessment of pref rights in a Capital Reduction is rather incompatible with prices being where they are. I would be comfortable with buying at a yield ensuring break-even on a par repayment three years from now, (around 120% of par?), until the situation is made clearer by some action or prolonged inaction! I don't think this is terribly different to Paul's view above.

Most of SAN will be in the hands of institutions with pockets deep enough to obtain expert legal advice. In which case the institutional holders would have already attempted to dump their shares and the price would have collapsed, yet this has not happened, so the advice must be that the legal situation is uncertain, or not sufficiently certain to lead to a significant price correction. The other thing which is odd is why Santander UK have not already gone for capital reduction. As the ords are entirely in the hands of Banco Santander and Santander UK are well capitalised it should be a simple matter to go for capital reduction and repay the prefs. Banco Santander are well known not to be investor/creditor friendly, so I cannot see reputational damage being an excuse.

The pricing certainly raises questions. One obvious one is whether the Capital Reduction clause was removed from the Articles deliberately in 2010? I find that hard to believe because I have seen it in most Articles but you never know. Has anyone asked Santander the question yet? Don't make me do it please!! I have no interest in these prefs so have not thoroughly researched them. My comments earlier were confined to the narrow context of Paul's question.


GS

Paul,

GS has given a full reply, so I restrict myself to several comments:

1. The case law has been consistent and clear over the last 50 years.

2. GS spotted the removal of the "capital reduction" article in the latest SAN version. These were subsequent to the 2006 CA. My read suggests that under the Act all limited companies can reduce capital and they do not required to reserve the right to do so in their articles -- the Act is permissive. The Act does say that the articles may limit or restrict such general power. I'm guessing, but the drafters may have seen the reduction article as superfluous.

3. As a result, I believe the probability of a court permitting a cancellation of SANUK prefs without a pref class meeting is 95% plus.

4. SAN group in 2010 owned 80% of the £125m 8 5/8% issue and 32% of the £200m 10 3/8% issue. In the former case the free float is £20m and even a 5% p.a. saving is only £1m a year. Court sanction involves a lot of time and expense (well into six figures for a company like SANUK), so the benefits of cancelling the small issue are pretty marginal for a group of SAN's size. In weighing up the investment merits of the various prefs background such as this is a significant input.

5. It is of course speculation as to why the IIs haven't sold down. I am fairly confident the legal advice would be that any case to block a cancellation would be very weak. Perhaps a more plausible explanation for their holding on to their shares is that the market is simply too illiquid for them to shift any real volume at current prices. Like GS I think 120% would be a reasonable price and it may be at this the prefs would find a level. Lots of egg on face, though, so easier for IIs to do nothing and hope the FSA lobbying bears some fruit -- whilst protesting loudly the unethical nature of cancellations?!

Chris

[grbell]

I notice from a recent filing that Santander now owns 60% of the 10.375% pref.

Chris do you know if the EU directive on Company Law would have any bearing on the interpretation of the Company Act 2006? In article 74 it seems to be at odds with the UK act requiring a class vote in cases of capital reduction. I am aware we have various opt outs so this may not be relevant. Would the fact that Santander UK's parent is Spanish make a difference?

To read the article search for '32017L1132 English' and click on 'text'. Sorry I don't have permission to post the link.

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (Text with EEA relevance).

Article 74

Reduction in the subscribed capital in case of several classes of shares

Where there are several classes of shares, the decision by the general meeting concerning a reduction in the subscribed capital shall be subject to a separate vote, at least for each class of shareholders whose rights are affected by the transaction.

[ChrisNix]

I notice from a recent filing that Santander now owns 60% of the 10.375% pref.

Chris do you know if the EU directive on Company Law would have any bearing on the interpretation of the Company Act 2006? In article 74 it seems to be at odds with the UK act requiring a class vote in cases of capital reduction. I am aware we have various opt outs so this may not be relevant. Would the fact that Santander UK's parent is Spanish make a difference?

To read the article search for '32017L1132 English' and click on 'text'. Sorry I don't have permission to post the link.

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (Text with EEA relevance).

Article 74

Reduction in the subscribed capital in case of several classes of shares

Where there are several classes of shares, the decision by the general meeting concerning a reduction in the subscribed capital shall be subject to a separate vote, at least for each class of shareholders whose rights are affected by the transaction.

GRB,

Haven't got time to look at this at the mo.

I am aware of it, but when I looked around previously I found an article, from a City law firm, which suggested the Directive doesn't have application to court sanctioned schemes.

Will have a look for the pdf if I get the chance.

Chris

[ChrisNix]

GRB,

From another discussion (not involving me directly):

"I too got the reply from BEIS Ministerial Correspondance Unit asserting that the UK law was fully compliant with EU law but not specifically referring to the separate class vote issue. I sent a follow up trying to press on the class votes and got a reply most of which is pasted below. I’m not sure what they are trying to say. Is it that under EU law but not under UK law no court order is needed for a reduction in capital? Also, if there is a court order no vote of any class is required under EU law?

QUOTE from emailed letter

“I believe you are referring to Article 74 of EU Directive 2017/1132, which requires that where
there are several classes of shares, the decision by the general meeting concerning a
reduction in the subscribed capital shall be subject to a separate vote at least for each class of
shareholders whose rights are affected. That article should be read in the context of the other
relevant articles on reduction of share capital, including article 73 preceding it, which provides
that any reduction in capital, except under a court order , shall be subject to at least a decision
of the general meeting. It should be noted that the Directive 2017/1132/EU is a codification of
earlier EU Directives and that the origin of these relevant provisions is in the Second Company
Law Directive (Directive 77/91/EEC) from the 1970s and therefore any required
implementation into UK law would have taken place at that time.

In the UK, a public company is required to obtain a court order approving a special resolution
to reduce its share capital. The relevant UK legislation are sections 641, and Sections 645 to
651 of the Companies Act 2006.”

END QUOTE"

Chris

[stockton]

GS has given a full reply, so I restrict myself to several comments:

1. The case law has been consistent and clear over the last 50 years.

Chris

As suggested by Andrew Bailey of the FCA, the problem is prefs. that are described by their issuers as irredeemable.
For those, there appears to be no relevant case law, or, at least, nobody has been able to find it.

[GoSeigen]

I notice from a recent filing that Santander now owns 60% of the 10.375% pref.

Chris do you know if the EU directive on Company Law would have any bearing on the interpretation of the Company Act 2006? In article 74 it seems to be at odds with the UK act requiring a class vote in cases of capital reduction. I am aware we have various opt outs so this may not be relevant. Would the fact that Santander UK's parent is Spanish make a difference?

To read the article search for '32017L1132 English' and click on 'text'. Sorry I don't have permission to post the link.

Directive (EU) 2017/1132 of the European Parliament and of the Council of 14 June 2017 relating to certain aspects of company law (Text with EEA relevance).

Article 74

Reduction in the subscribed capital in case of several classes of shares

Where there are several classes of shares, the decision by the general meeting concerning a reduction in the subscribed capital shall be subject to a separate vote, at least for each class of shareholders whose rights are affected by the transaction.

UK law is already in line with this directive as it affects preference shares. UK case law has established that a reduction in the subscribed capital affecting a non-equity class of shares (as preference shares are) does not affect the rights of the shareholders.

Search my posts on this forum for "non-equity" and you should easily find reference to the relevant cases. This link also refers:

https://lawexplores.com/shareholders-shares-and-share-capital/


GS

[ChrisNix]

GS has given a full reply, so I restrict myself to several comments:

1. The case law has been consistent and clear over the last 50 years.

Chris

As suggested by Andrew Bailey of the FCA, the problem is prefs. that are described by their issuers as irredeemable.
For those, there appears to be no relevant case law, or, at least, nobody has been able to find it.

Stockton,

Is your belief that irredeemable in the context of UK listed prefs means:

(a) Not able to be repurchased by the issuer; or

(b) Not able to be redeemed pursuant to Part 18 Chapter 3 of the CA; or

(c) Not subject to a reduction of capital pursuant to Part 17 Chapter 10 of the CA; or

(d) A combination of some or all of the above?

Chris

[stockton]

Stockton,

Is your belief that irredeemable in the context of UK listed prefs means:

(a) Not able to be repurchased by the issuer; or

(b) Not able to be redeemed pursuant to Part 18 Chapter 3 of the CA; or

(c) Not subject to a reduction of capital pursuant to Part 17 Chapter 10 of the CA; or

(d) A combination of some or all of the above?

Chris

I would use "implies" rather than "means", but from that list (c), (b) being irrelevant.

[dspp]

I notice from a recent filing that Santander now owns 60% of the 10.375% pref..... .

I appreciate that most of you are discussing stratospheric matters of legal principle but can I ask a few more basic questions about this particular one please. Is my understanding correct that:

1) Santander (UK) has obtained a load of money by issuing preference shares;
2) Santander (Spain) which is the mothership owns most (60%) of those preference shares;
3) It now seems possible that Santander (UK) could repay those preference holders pretty much as/when it chooses;
4) And one effect of that would be to shift a chunk of capital from the UK to Spain.

a) Have I correctly understood those four things ?

b) Re 3) this is the area where - as mostly a matter of principle, but sometimes as a matter of practice - this is what you are all debating. Is there any particular reason to think that minority holders could stop this particular one ?

c) Re 4) what would this do to capital adequacy of the Santander (UK) banking requirements etc.

d) And if say one wanted to shift a bunch of capital from UK to Spain would this not be a good way ? At the same time retiring some minority holders at high % levels.

regards, dspp

[Alaric]

b) Re 3) this is the area where - as mostly a matter of principle, but sometimes as a matter of practice - this is what you are all debating. Is there any particular reason to think that minority holders could stop this particular one ?

I don't suppose minority shareholders would particularly care, so long as they could replace the income from Santander with something else. The price of replacing that income is in the 150 plus range and the controversy is as to whether Santander have the right to tell them that they are getting 100 plus a bit of accrual and that's it.

[ChrisNix]

Stockton,

Is your belief that irredeemable in the context of UK listed prefs means:

(a) Not able to be repurchased by the issuer; or

(b) Not able to be redeemed pursuant to Part 18 Chapter 3 of the CA; or

(c) Not subject to a reduction of capital pursuant to Part 17 Chapter 10 of the CA; or

(d) A combination of some or all of the above?

Chris

I would use "implies" rather than "means", but from that list (c), (b) being irrelevant.

Stockton,

This is unclear.

Are you saying the implication is that such prefs:

* Are able to be repurchsed

* Are able to be redeemed

* Are NOT able to have their capital reduced?

Chris

[stockton]

Stockton,

This is unclear.

Are you saying the implication is that such prefs:

* Are able to be repurchsed

* Are able to be redeemed

* Are NOT able to have their capital reduced?

Chris

Can be repurchased subject to the appropriate conditions.

Cannot be redeemed without an amendment to the terms.

Consequently cannot be subject to a capital reduction without an amendment to the terms.

[ChrisNix]

Stockton,

This is unclear.

Are you saying the implication is that such prefs:

* Are able to be repurchsed

* Are able to be redeemed

* Are NOT able to have their capital reduced?

Chris

Can be repurchased subject to the appropriate conditions.

Cannot be redeemed without an amendment to the terms.

Consequently cannot be subject to a capital reduction without an amendment to the terms.

Stockton,

Your understanding of repurchases is accurate.

Regards redemptions you've got things back to front. Under the CA all prefs are irredeemable unless prior to their issue the articles state that they are redeemable subject to the appropriate conditions.

Chris.