Following a strongly supported request on the TMF Banking Sector Board (see http://boards.fool.co.uk/Message.asp?mid=11806573&sort=whole#11807179 ) I have set-up this page as an information resource for holders of Bradford & Bingley subordinated bonds to follow my research and lobbying efforts. I will add correspondence sent and information obtained over time. The table of contents below summarises the content of the page and provides quick links to the various sections within it.
This is a free fixed income information site and the costs of running it and my efforts to obtain information and lobby on behalf of retail investors are solely funded from donations and advertising. If you have benefited and would like to make a donation you can do so via the Advertising and Donations page.
I have set up a separate e-mail list for holders of Bradford & Bingley subordinated bonds and others interested in following developments. To join the list please complete and submit the short form below:
Link to article in my blog which summarises my own research into Bradford & Bingley Subordinated Bonds. This is the best starting point for obtaining an understanding of the situation. As well as my research it contains links to a large number of excellent documents which are essential reading for those seeking to obtain a better understanding of Bradford & Bingley subordinated bonds.
I regularly update 3 tables from that article which have proved popular with users of this site. I have included them below:
The announcement of the offer can be found at:
Further details on this site at:
I have done a write up in my blog at:
You can download the PDF of the annual report at:
National Audit Office Report - Stewardship of the wholly-owned banks: buy-back of subordinated debt - 18 Mar 2011
The National Audit Office has prooduced a detailed report on the buy-back of subordinated debt by Bradford & Bingley (B&B) and Northern Rock Asset Management (NRAM). You can download the various sections of the report from the following link:
Peter Clokey, the Bradford & Bingley valuer, has released his revsied assessment notice although 'revised' is hardly accurate as he has not changed a thing and is still not minded to assess compensation for anyone. The full document is availabe for download at:
Having ploughed through the overly long report there are a few snippets of interest for holders of the subordinated debt of both banks:
So long as the Treasury follows its current approach of ensuring the providers wind-down in an orderly fashion effectively, the other creditors, including the subordinated debt-holders, should not lose any of their investment during the orderly wind-down. Treasury is likely to follow this approach so long as it believes that an orderly wind-down would generate the best return for taxpayers. Nevertheless, the other creditors – especially the subordinated debt – still carry two residual risks:
a. Economic risk: It is possible that an extreme economic deterioration would reduce the value of the providers’ mortgage assets to the point where the Treasury believed it would be better value for money to stop taxpayer support and share losses with the other creditors in insolvency procedures rather than attempt to generate greater profits through an orderly wind-down.
b. Policy risk: the Treasury is working internationally to reform capital regulations, and further policy development may enable the Treasury to restructure the mortgage providers’ capital in such a way as to result in further loss on the subordinated debt-holders.
Bradford & Bingley have released the results of the tender offers in two announcements - the first on 6 December for the £150,000,000 6.462% Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities:
And the second on 9 December for the 11.625% and 13% Perpetual Subordinated Bonds:
They allowed more time for the PSBs in case any acceptances were delayed in the post due to bad weather. A summary of acceptances is as follows:
SECURITY ISSUE SIZE ACCEPTANCE OFFERED
6.464% Guaranteed Perpetual Preferred Securites £150,000,000 £103,677,000 (69.12%) 55% + accrued interest
11.625% Perpetual Subordinated Bonds £50,000,000 £14,280,000 (28.56%) 36%
13% Perpetual Subordinated Bonds £60,000,000 £13,460,000 (22.43%) 38%
Bradford & Bingley plc announces tender offer for three issues of its subordinated notes its outstanding £60,000,000 13% Perpetual Subordinated Bonds (ISIN: GB0002228939) and its £50,000,000 11⅝% Perpetual Subordinated Bonds (ISIN: GB0002233913) and the £150,000,000 6.462 per cent. Guaranteed Non-voting Non-cumulative Perpetual Preferred Securities Series A (ISIN: XS0148804536):
As with the June tender offers both B&B and NR are tendering simultaneously. Both are tendering for T1 issues which were not included in the previous tender. The difference this time is that they are offering below market whereas last time the offers represented a tempting premium. This is probably a function of the fact that market prices on this stuff have moved up markedly since the last tenders in June. I cannot see the attraction to retail holders who could sell in the market for more although, no doubt, some institutional holders will go for it to get them off their books before year end. It was last December that the B&B 5.625% and 6% issues could be picked up sub 4p due to funds dumping before year end so perhaps the timing of this offer is shrewd.
More comment on the Tender Offer added on 27 Nov 2010 at Bradford & Bingley and NRAM Tenders Take Two
Peter Clokey, Independent Valuer for the purposes of the Bradford & Bingley plc Compensation Scheme issues his Assessment Notice in respect of the dated subordinated bonds. He has decided that no compensation is payable. This is largely due to his conclusion that Bradford & Bingley would have gone into administration if it has not been nationalised and that the outcome for holders under nationalisation will be better than it would have been under administration. The full notice can be downloaded at:
Peter Clokey, Independent Valuer for the purposes of the Bradford & Bingley plc Compensation Scheme issues his Assessment Notice in respect of shares and subscription rights:
05 Jul 2010 13:44
Peter Clokey, the independent valuer for the purposes of the Bradford and Bingley plc Compensation Scheme and a partner of PricewaterhouseCoopers LLP, has today issued his Assessment Notice determining that no compensation is payable by HM Treasury to former shareholders of Bradford & Bingley plc (B&B plc) or to former holders of subscription rights relating to shares in B&B plc.
Mr Clokey has issued his Assessment Notice in accordance with paragraph 10 of the Schedule to the Bradford & Bingley plc Compensation Scheme Order 2008 after taking into consideration representations from a wide range of groups and individuals.
B&B plc was taken into public ownership on 29 September 2008 when shares in the company were transferred to HM treasury under the Bradford & Bingley plc Transfer of Securities and Property etc. Order 2008.
A copy of the Assessment Notice may be seen at http://www.bandbvaluer.org.uk/
Bradford & Bingley announce the results of their tender offer. The level of take up amongst holders was very high
The full announcement is available at:
Peter Clokey (the valuer) has made a new announcement to holders of the undated sub-bonds. It is to notify that he has not changed his conclusion that the CSO does not apply to such holders. I suspect this announcement has been brought forward as a result of the Tender Offer so that holders can know categorically where they stand before deciding whether to accept the offer. The full announcement is available at.
Following those announcements, I received written representations from a number of interested parties. Having considered each of those representations carefully, I can confirm that my conclusion that the Compensation Scheme Order did not apply either to PIBS or undated subordinated notes remains unchanged.
The Tender Offer announced on 2 June gives rise to a number of questions. In particular how the offer is permitted in relation to the EC State Aid agreement not to make any repayments of subordinated debt until the statutory debt is repaid in full and why the 11.625% and 13% former PIBS have not been included in the offer. I have posted these questions to Bradford & Bingley and received helpful responses as follows:
QUESTION 1: How is the tender offer permitted under the EC State Aid condition of no coupons or repayment of subordinated notes before the statutory debt has been repaid in full?
B&B RESPONSE: The tender offer does not constitute either a payment of interest or principal. This is an offer to purchase the bonds outright and take ownership of them.
The Bonds currently trade at significant discounts to par on the secondary market. This exercise would enable B&B to generate both profit and increase equity capital by purchasing the Bonds for a price less than the values at which they are recorded in B&B’s accounts (which is close to par).
This exercise enables B&B to re-balance its capital profile by converting some of its Lower Tier 2 capital to more valuable Core Tier 1 (equity) capital. This in turn is provides a greater capital cushion with which to protect the remaining creditors.
QUESTION 2: Why have the 11.625% and 13% former PIBS not been included in the Tender Offer?
The Tier 1 securities of B&B have notably different characteristics from the Bonds, in terms of subordination and deferral features. Certain securities of the B&B which rank pari passu with certain of the securities being tendered for are not subject to tender, because they were originally issued to retail investors.
The bonds included within this offer include the least efficient debt for regulatory capital purposes. By buying back these bonds B&B is making itself more efficient and giving itself with a greater cushion with which it can protect the remaining creditors against future losses.
The above answers are pretty self-explanatory and the second confirms the point that retail investors have been purposefully excluded from the tender offer. I have also spoken to Deutsche Bank (the deal managers) who have confirmed that the offer is only intended for professional clients holding the securities tendered for.
On 2 June 2010 Bradford & Bingley announced a tender offer for its dated subordinated bonds and two of its undated subordinated bonds. Northern Rock (Asset Management) plc announced a tender offer for its upper tier 2 debt yesterday so the whole exercise looks to be UKFI / Treasury co-ordinated. This is good news as it suggests a move to a more pragmatic (and less bloody-minded approach) under the new government. As those who follow my campaign will know I have been lobbying Mark Hoban (was Conservative Treasury spokesman) for some time as he was critical of the way HMT were handling the B&B bondholders issue. He is now a junior Treasury minister and hopefully has had some positive influence. The full text of the announcement can be found at:
The table below summarises the key details of the subordinated bonds and the tender offer amounts:
The tender offer is most generous to the holders of the dated notes with 40-43% of the nominal value plus arrears being offered. Holders of the 5.625% and 6% undated notes are being offered about 23% of nominal plus arrears and the fomer PIBS (now the 11.625% and 13% PSB's) are not included in the tender offer. These former PIBS were issued at a time of very high interest rates and are the most expensive in P&L terms due to the 11.625% and 13% coupons so their exclusion from the offer is somewhat surprising. I have taken a look at the terms of these notes ( http://corporate.bbg.co.uk/~/media/Files/B/Bradford-And-Bingley-Corporate/pdf/financial-info/debt-investors/subordinated-debt/PSBListingParticulars.pdf&usd=2&usg=ALhdy2-ppKvZqkOQBGQGXxauJx0h0eItQQ ) and the Issuer appears to have power to purchase at any time in the open market or by tender. It therefore appears that they have not been included in the tender because they are mainly held by a large number of private investors and the offer has been aimed at the larger institutional holders to whom those issues included in the offer were originally marketed. However, despite their exclusion, the market price of the former PIBS has risen sharply in reaction to the offer.
A number of questions arise from the tender offer. These include that of how it has been permitted in light of the EC State Aid approval commitment not to make payments of interest or principal before the statutory debt has been repaid in full. The EC State Aid approval document states:
Restrictive policy on coupon payments and call options on hybrid capital
(30) The UK authorities commit that Rumpco shall not make payments of interest and principal on the hybrid debt instruments indicated by the UK (see recitals 22-24) in the period before the statutory debt has been repaid (by which time it is expected that the working capital facility will have been repaid as well), unless it has a contractual obligation to do so. That exception concerns payments in respect of the Capital Funding Notes which Rumpco is contractually required to make under the guarantee (see recital 24).
(31) Once the statutory debt has been repaid Rumpco will make payments of interest and principal in respect of the hybrid debt instruments from its assets available to meet such liabilities.The full document is available for download at:
It would appear that HM Treasury and B&B have managed to obtain EC agreement that the tender offer does not represent a repayment. However the above section from the EC Approval will be of interest to those considering whether or not to accept the offer as it confirms the position with respect to payment of interest. In addition paragraph 9 of the document gives some indication of the expected timeframe for repayment of the statutory debt before payments of interest can be resumed as follows:
(9) The liquidation plan projects Rumpco's performance from 2009 to 2018. In addition, the UK authorities have provided financial projections beyond 2018 regarding the working capital facility and the statutory debt, the impact of asset sales and the guaranteed bonds and derivatives. In the base case, excluding asset sales, the statutory debt and the working capital facility should be repaid by 2023. The large majority of the guaranteed liabilities and derivatives expire before the end of 2018, although there are some minor guaranteed liabilities stretching up to 2047. However, according to the UK, Rumpco is expected to be wound up before then.
This is the biggest clue I have seen to date of the timeframe envisaged in the B&B business plan. Taken at face value holders who do not accept the offer would have a wait of 13 years before payments of interest could be made.
Another interesting aspect is that the B&B Valuer, Peter Clokey, has committed to report by the end of June which makes the tender timing 'interesting' for holders of the dated notes still included in the compensation process. Accepting a tender at 45p with no accrued could leave holders kicking themselves if Clokey awards full compensation to holder days later.
I have finally managed to extract an admission from HM Treasury that the suspension of interest and capital repayments on the subordinated bonds until the statutory debt has been repaid is a condition of EC approval of the Restructuring Plan. You can read the full letter at:
Below is a link to a letter of representation I have written to Peter Clokey, the Valuer, disputing his conclusion that the Compensation Scheme does not apply to the undated subordinated bonds:
The Government needs to confess why it nationalised Bradford & Bingley - London Evening Standard - 22 March 2010:
B&B shareholders take government to task on silence - FT Adviser - 25 March 2010:
Bradford & Bingley has announced its results for the year-ended 31 Dec 2009. Link to the full annual report is below:
Below is a link to a letter from Peter Clokey in response to my letter of 8 March 2010:
Correspondence & Enquiry Unit 2/W1
Freedom of Information Section
1 Horse Guards Road
10 March 2010
On 25 January 2010 HM Treasury announced that the EC had approved the restructuring plans for Bradford & Bingley plc (http://www.hm-treasury.gov.uk/press_06_10.htm). On 23 February 2010 Bradford & Bingley plc announced that it had resolved not to make any payment of interest or principal on any of its Subordinated Notes during the period prior to the date on which it repays in full its liability to the Financial Services Compensation Scheme (http://corporate.bbg.co.uk/financial-information/rns-story.aspx?RnsID=1266949755nRSW5788Ha). The latter announcement made reference to the approval of the aid provided by the UK Government under State aid rules announced by the European Commission on 25 January 2010 and 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.
I am writing to request the following information under the Freedom of Information Act 2000:
1. Did the restructuring / business plan, referred to in the 25 January 2010 announcement, submitted to the EC for approval contain a commitment that Bradford & Bingley would not make any payment of interest or principal on any of its Subordinated Notes during the period prior to the date on which it repays in full its liability to the Financial Services Compensation Scheme? (YES / NO)
2. Is the EC approval, referred to in the 25 January 2010 announcement, subject to or conditional on an agreement that Bradford & Bingley will not make any payment of interest or principal on any of its Subordinated Notes during the period prior to the date on which it repays in full its liability to the Financial Services Compensation Scheme? (YES / NO)
I would ask that this information request is dealt with as quickly as possible and have restricted the information requested to simple YES/NO answers in order that this may be possible. I am a holder of Bradford & Bingley subordinated bonds and consider the answers essential in order that I can fully assess my rights under the Bradford & Bingley Compensation Scheme Order. The Valuer has stated that he requires submissions by 31 March 2010.
cc: Mark Hoban MP - Shadow Financial Secretary to the Treasury
Peter Clokey Esq - Bradford & Bingley Compensation Scheme Order Valuer
8 March 2010
Dear Mr Clokey
I refer to your letter dated 19 February to holders Bradford & Bingley undated subordinated securities ( http://www.bandbvaluer.org.uk/Notice_to%20undated_sub%20notes_Final.pdf ). I was very disappointed that, despite have registered my holding with you, as requested via your website, and written making detailed representations I did not receive your letter by either email or post.
Having now had the opportunity to read your letter I would ask if you are willing to provide an explanation of your conclusion and, in particular:
(i) On what basis you have concluded that no rights of the holders of such instruments, as set out in Article 7(3) of the Transfer Order have been extinguished by virtue of the First Transfer?
(ii) In respect of Article 7(1) of the Transfer Order states:
"The consequences specified in paragraph (3) shall not arise in respect of any relevant instrument as a result of the first transfer, or any other thing done, or matter arising, by virtue of or in connection with the first transfer."
Please confirm whether or not you accept that the Second Transfer was a "thing done.....by virtue of or in connection with the first transfer", because if so the consequence of the Second Transfer would in fact fall under Article 7.
I would comment that I dispute your conclusion that the Compensation Scheme Order does apply to the holders of the Undated Notes. For example:
Article 7(3) of the Transfer Order refers to:
(c) any amount becoming due and payable or capable of being declared due and payable;
(d) any other change in the amount or timing of any payment falling to be made or due to be received by any person;
Article 30(2) of the Transfer Order provides that:
Bradford & Bingley, the FSCS and the Treasury shall agree terms on which ... the amount of Bradford & Bingley's liability to the FSCS ... is to be reduced out of cash flow and other proceeds.
The public have not been told terms of this agreement, which arises as a direct requirement of the Transfer Order, but if the parties have agreed that no interest will be paid on the subordinated notes until the FSCS Debt has been repaid it would appear that as a direct result of the Transfer Order interest is not capable of being declared due and payable while the FSCS debt (which was also a direct consequence of the Transfer Order) exists. The interest suspension certainly seems to be an action resulting from the Transfer Order and the announcement of the suspension refers to Article 30(1) as follows:
4. The Company has now resolved not to make any payment of interest or principal on any of its Subordinated Notes during the period prior to the date on which it repays in full its liability to the Financial Services Compensation Scheme pursuant to Article 30(1) of the Original Order (this liability being known as the "Statutory Debt").
I would also notify you at this stage that if the undated subordinated notes are excluded from the Compensation Scheme Order ('CSO') then the CSO itself (which is a direct result of the Transfer Order being implemented under the Banking Act, and therefore a direct consequnce of the First Transfer) is extinguishing rights of the relevant notes. This is because their position within the hierachy of creditors in compensation (and in the current solvent liquidation of Bradford & Bingley) would, in substance, be subordinated to that of ordinary shareholders. I trust you will be considering this issue very carefully before reaching an final conclusions.
I look forward to receiving your response as a matter of urgency so that we can better assess our position.
Below is a link to a letter from Mark Hoban MP in response to my letter of 18 Jan 2010:
Bradford & Bingley announce that it has resolved to make no further interest payments on its subordinated debt until the FSCS Statutory debt has been repaid in full:
The valuer has written to holders of Bradfoard & Bingley's undated subordinated debt. He has written separate letters for the former PIBS and undated bonds. In both cases he has concluded that the Compensation Scheme does not apply to the undated securities in question.
The letter to the holders of the former PIBS is available for download at:
The letter to the holders of the undated subordinated bonds is at:
You can download a copy of the letter from:
The UKSA will be sending a separate letter on behalf of subordinated bondholders.
I have written a detailed letter of complaint to HM Treasury concerning its refusal to provide the information I requested. You can read the letter at:
I have at last received a response to my Freedom Of Information Act request of 18 Jan from HM Treasury. As anticipated they have used their full armoury of legal objections to providing the information requested. However, they do appear to have confirmed that both the Business Plan and Working Capital Facility have contents which place conditions on the payment of interest on Bradford & Bingley's subordinated debt.
You can download the letter from the following link:
I will be appealing against their decision not to release the specific information which relates to payment of interest. Their claim that it is 'commerically sensitive' appears to be without basis. Bradford and Bingley are in wind-down and not competing for or accepting new business. Furthermore, with-holding information which is material to the position and price of securities which are listed and traded on the London Stock Exchange arguably constitutes Market Abuse.
As widely anticipated the European Commission has approved under EU state aid rules UK Government measures granted for the liquidation of Bradford & Bingley:
Below is a link to a long letter I have written to Peter Clokey, the Valuer, making representations for the awarding of compensation to holders of Bradford & Bingley subordinated bonds:
Correspondence & Enquiry Unit 2/W1
Freedom of Information Section
1 Horse Guards Road
18 January 2010
I am writing to request the following information under the Freedom of Information Act 2000:
1. The Bradford & Bingley plc business plan (not the already published summary) finalised on 29 March 2009 as referred to in evidence to the Treasury Committee by Richard Pym:
"Mr Pym: We have worked very closely with the Treasury and the shareholder executive, and not just myself but there is a whole team of people who are working all the time with the Treasury team to develop this business plan, and contact is very, very frequent, and very, very constructive. We are working with some high-quality people."
2. If not available from (1) above any contents of the Business Plan which refer to or infer conditions or restrictions for the declaration and payments of interest on Bradford & Bingley's sub-ordinated debt.
3. The terms of the Working Capital Facility provided by HM Treasury to Bradford & Bingley as referred to in the 'Relationship Framework Document' (http://www.bbg.co.uk/bbg/siteware/bb_sh_frame.pdf).
4. If not available from (3) above 'any actions that require HM Treasury’s approval, consent or agreement under the terms of the Working Capital Facility' as referred to in the 'Relationship Framework Document': (http://www.bbg.co.uk/bbg/siteware/bb_sh_frame.pdf).
5. The terms of the Bradford & Bingley FSCS Statutory Debt which is funded by HM Treasury.
6. If not available from (5) above 'any actions that require HM Treasury’s approval, consent or agreement under the terms of the FSCS Statutory Debt as referred to in the 'Relationship Framework Document': (http://www.bbg.co.uk/bbg/siteware/bb_sh_frame.pdf).
I look forward to hearing from you.
Mark Hoban Esq.
House of Commons
18 January 2010
Dear Mr Hoban
I run a free information website (www.fixedincomeinvestments.org.uk) for fixed income investors and have been contacted by a large number of retail investors who are very concerned about the status of their investments in Bradford & Bingley and would be very appreciative of any efforts to obtain more information on their behalf. As part of my research into the situation I read with interest your comments and exchanges with Ian Pearson on the situation at the House of Commons Committee debate of 28 April 2009 ( http://www.publications.parliament.uk/pa/cm200809/cmgeneral/deleg5/090428/90428s01.htm ).
The current lack of information on the contents of the Business Plan (other than an unenlightening summary) and the terms of the Working Capital Facility and Statutory Debt are of particular concern. You will be aware that since the Business Plan was finalised on 29 March 2009 no interest payments have been declared for payment on any issue of Bradford & Bingley subordinated debt. This fact together with following statement made by Lord Myners in his letter of 25 February 2009 to the ABI (see http://www.hm-treasury.gov.uk/d/letter_myners_haddrill_260209.pdf ) make it seem likely that the Business Plan does contain restrictions or conditions which have to be met before the Board are able to exercise their 'discretion' in declaring interest for payment on both the dated and undated subordinated debt.
Going forward, whether or not to defer payments of principal and interest on the dated subordinated notes remains a decision for Bradford & Bingley's Board. We would expect Bradford & Bingley to consider its strategy in relation to the context of the ongoing business plan, which will be finalised by the end of March.
This being the case, it would appear that even the terms of the undated subordinated bonds have been varied by the Transfer Order and nationalisation. Before the Transfer Order the Bradford & Bingley board had absolute discretion subject to solvency whereas it now appears that additional conditions have been applied to this 'discretion'. It therefore seems clear that the relevant sections of the Business Plan constitute material price sensitive information should be disclosed to holders of the bonds and the market in general. The bonds are still listed and traded on the London Stock Exchange and other exchanges and, so, fall under the FSMA 2000.
From reading the comments of Ian Pearson he makes much of the concept of 'maintaining the hierachy of creditors'. What he fails to address is the fact that before Bradford & Bingley was pre-emptively nationalised and the successful, growing and profitable retail deposit business disposed of (by way of an unforced and unnecessary decision) about 50% of the loan book was funded by the retail deposit business. The retail deposit business effectively constituted a perpetual source of funding to Bradford & Bingley and there was no requirement that it should be repaid in full before any payments could be made to subordinated bondholders. The decision to dispose of the retail deposit business and replace it with Statutory Debt on which, it appears, repayments are expected before interest can be paid to subordinated bondholders has therefore effectively varied the position of the bondholders.
I would be very interested to receive your comments on the above and very grateful for any efforts you could make to obtain disclosure of the information I have referred to which is currently being withheld.
I look forward to hearing from you.