Bradford and Bingley Default

Generali

Well now it's credit crunch part IV.

Bradford and Bingley have announced that they're going to default on various fixed interest payments to investors:

http://www.bbg.co.uk/bbg/ir/news_prs/historicnews/groupnews/pressrelease/?id=4995866

£125,000,000 6.625 per cent. Subordinated Notes due 16 June 2023 (ISIN: XS0087993423) (the “2023 Subordinated Notes”) issued by Bradford & Bingley plc (the “Company”)

Reference is made to The Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008, as amended by The Bradford & Bingley plc Transfer of Securities and Property etc. (Amendment) Order 2009.
The Company has resolved not to make any interest payment in respect of the 2023 Subordinated Notes on their next interest payment date (16 June 2009).
The Company will notify noteholders accordingly.
ENDS

£50,000,000 11.625 per cent. Perpetual Subordinated Bonds (ISIN: GB0002233913) (the “11.625 per cent. Perpetual Subordinated Bonds”) issued by Bradford & Bingley plc (the “Company”)

The Company has resolved not to make any interest payment in respect of the 11.625 per cent. Perpetual Subordinated Bonds on their next interest payment date (20 July 2009).
The interest not paid will constitute “Arrears of Interest” for the purposes of the terms and conditions of the 11.625 per cent. Perpetual Subordinated Bonds.
The Company will notify bondholders accordingly.
ENDS

So the UK Government is in default for the first time (AFIAK) since Henry VIII debased the coinage.

mbga9pgf

Its all possibly about to get interesting!!!!

Cant wait to see LIBOR and CABLE over the next 24 hours!

It is only half a billion though....

Graham_Devon

May I be the first and possibly only person to say, help, what does this actually mean?

mystic_trev

http://ftalphaville.ft.com/blog/2009/05/27/56272/bradford-bingley-the-delinquent-bank/

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.

Generali

mystic_trev wrote: »

http://ftalphaville.ft.com/blog/2009/05/27/56272/bradford-bingley-the-delinquent-bank/

I picked up on it from TMF but it's generally better, IMO, to go to the original source (the B&B website in this case).

Count_Dante

Poster number 5 (MM) in the ft blog has some info:

OK, found some answers here: http://www.opsi.gov.uk/si/si2009/uksi_20090320_en_1

"(3) The principal and interest due in respect of a dated subordinated note shall not become due and payable except to the extent that condition 1 or 2 (as specified in paragraphs (4) and (5)) is met and paragraph (6) applies.

(4) Condition 1 is that Bradford & Bingley notifies the holder of a dated subordinated note that the principal or interest (or any part of either) is to be due and payable (whereupon the payment is due on the date specified by Bradford & Bingley).

(5) Condition 2 is that Bradford & Bingley has satisfied in full its liability to the FSCS under article 30(1); that liability shall not be regarded as satisfied in full for the purposes of this paragraph if article 30(4) applies.

(6) Principal or interest in respect of a dated subordinated note shall become due or payable only to the extent that Bradford & Bingley could make the payment and continue to be solvent thereafter.

(7) Any interest in respect of a dated subordinated note which, by virtue of paragraph (3), has not become due and payable, shall bear interest calculated at the same rate and in the same manner as provided for in the dated subordinated note.

(8) In a winding-up of, or on a distribution by an administrator appointed in respect of, Bradford & Bingley there shall be payable in respect of each dated subordinated note such amount as would be payable to a holder of a preference share in Bradford & Bingley ranking ahead of all other issued shares of Bradford & Bingley (including any other preference shares or any notional shares), on the assumption that such preference share was entitled to an amount equal to the principal amount of such dated subordinated note together any interest which has accrued up to the date of repayment.

(9) For the purposes of paragraph (6), Bradford & Bingley is not solvent if it would be deemed unable to pay its debts within the meaning given by section 123 of the Insolvency Act 1986."

Translation: Interest is payable only if (1) B&B chooses or (2) B&B has repaid all the FSCS money. Even then, interest is payable only if B&B is solvent. Interest unpaid will be rolled up (like a funding note).

mbga9pgf

For some reason other banks don’t want its customers.

I wonder? Could it be something about lending at record multiples and not having a hope in hell of getting the money back? :rolleyes:

chupov

did chucky miss a payment one one of his BTL's?

Generali

Graham_Devon wrote: »

May I be the first and possibly only person to say, help, what does this actually mean?

Bradford and Bingley borrowed money in a pretty normal way - that is they sold a piece of paper to investors stating that in return for a certain amount of money today they'd pay a regular interest payment each year and then return the cash that had been lent at the end of the period stated on the IOU.

When the Bradford and Bingley was bought, the liability for that debt transferred to the buyer. On the face of things, B&B was 'bought' by the UK Government and now the Government has apparently defaulted on the debt it took on.

So why has B&B/UK Government defaulted? Is it can't pay or won't pay? In either case, what does that mean for the biggest chunk of liabilities for nationalised and semi-nationalised UK banks, that group being depositors? Should the runs on UK banks have stopped if the Government can't pay out debts owed by those banks?

chucky

chupov wrote: »

did chucky miss a payment one one of his BTL's?

nah your mum and dad are up to date with rent.

baby_boomer

This is all within the original t&cs for the Bradford & Bingley PIBs.

I'm surprised that payments have continued for so long. After all the company has gone bust!

What's there to complain about? It's odd that Generali has lost his usual sense of judgement.

These people bought shares to get a better rate, took on the associated risk and lost.

That's the market for you. What is the problem?

BTW Dunfermline BS didn't have PIBs - so there was no-one to lose out.

All eyes now on the forthcoming West Brom BS results [out before the end of June] to see if the government has to bail the society out and screw the PIBS holders on behalf of the UK taxpayer [me and you].