A group of hedge funds has begun talks with the Prudential Regulation Authority (PRA) over a rescue deal for Co-op Bank.
Blue Mountain Capital Management, Cyrus Capital Partners, GoldenTree Asset Management and Silver Point reportedly met with the PRA last week.
Sky News first reported that the bondholders had argued to the watchdog that the lender needs a smaller injection of funds than was previously indicated.
It emerged earlier this month that the hedge funds had made a proposal to Co-op Bank, with hopes of an outright sale of the bank fading.
In March, Co-op Bank said that if a sale did not to materialise, it would need to raise between £700m and £750m in extra capital.
Most of this amount, it said, would be made by swapping debt for equity. The bank said a further £300m would need to be raised through issuing new shares.
Sky News reported that the hedge funds’ proposal will include the provision of a smaller amount of new equity than the £300m Co-op Bank signalled it would require.
The PRA and Co-op Bank declined to comment.