Bradford & Bingley to Skip Subordinated Bond Interest

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ASusilovic

May 27 (Bloomberg) -- Bradford & Bingley Plc, the U.K. lender to landlords taken over by the government, said it won’t make interest payments on 325 million pounds ($520 million) of subordinated bonds.

The bank will skip payments due in either June or July on 50 million pounds of 11.625 percent perpetual bonds, 125 million pounds of 6.625 percent notes maturing 2023 and 150 million pounds of floating-rate bonds due 2054, according to three separate statements sent after the market closed yesterday.

Subordinated bonds have tumbled on concern governments will force financial institutions that received bailouts to defer bond interest payments to protect taxpayers. The U.K. changed rules in February to allow the Bingley, England-based bank to defer interest on its debt.

“This makes it highly probable that interest will be suspended on the bank’s other outstanding subordinated bonds,” said Eleonore Lamberty, a credit analyst at ING Groep NV in Amsterdam.

Bradford & Bingley will decide on future interest payments as they fall due, according to spokeswoman Katherine Conway. The bonds on which the bank will miss interest are so-called upper- and lower-Tier 2 securities, she said. Banks issue Tier 1 and Tier 2 debt to raise capital demanded by regulators to protect depositors.

http://www.bloomberg.com/apps/news?pid=20601087&sid=aoywFndTOFYY&refer=home
 
They have done this before on their LT2 notes... This isn't the first time, but it ain't nice, that's for sure. The interesting question is whether, this time around, they're gonna be able to do it without defaulting. Last time they found a loophole, but ISDA has been trying to tighten the rules on them recently...
 
How sneaky is this?

Bradford & Bingley, the nationalised mortgage bank, quietly issued three statements after the market had closed on Tuesday, informing holders of three classes of notes that they would not now be getting their next due interest payment.

Affected paper:

- £150m FRN due March 2054
- £50 11.624 per cent Perpetual Subordinated Bonds
- £125m Subordinated Notes due June 2023

There’s no explanation as to why B&B won’t be paying the coupon. Remember this is now a state-owned entity, so presumably no one feels the need to keep the market properly informed.

And the market reaction? Apoplectic. The 11.625 per cent Perps, for example, collapsed from 30 to 10 on Wednesday, with the bid/offer spread standing a 5/15.

This buy-to-let basket case has a loan book running to £42bn which it is struggling to run down. For some reason other banks don’t want its customers.
 
All this is sorta old news... The LT2/UT2 mkt has been dead for a while now, driven by all sorts of nastiness that the banks have been doing...

To me, the big question is now the political interactions between the govts and ISDA which will determine whether this is going to trigger a default.

Let the fun continue...
 
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