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Bradford & Bingley and NRAM Tender Offers - with a sting in the tail

posted 16 Nov 2011 14:45 by Mark Taber   [ updated 20 Nov 2011 14:55 ]
Bradford & Bingley and NRAM today announced tender offers for all issues of their outstanding subordinated bonds apart from the largely retail held former PIBS. It is about a year since these nationalised banks last tendered for their outstanding subordinated bonds but this time the offers are not of the straightforward 'take it or leave it' variety but have a devilish sting in the tail which is clearly designed to persuade holders to accept this time.

The mechanism being used is similar to that used by Irish banks in their tender offers. This is that the issuers are seeking to amend the terms of the bonds to insert a call option. The process is eased along by those who accept the offer being deemed to cast a vote in favour of the amendment resolution in the process. However, unlike the coercive Irish offers, the proposed call option in the Bradford & Bingley and NRAM offers is at the same rate as the offer itself. So at first glance not accepting the offer and voting against the amendment resolution if you are not happy with the level looks a reasonable option if the call option were to be exercised immediately the amendment resolution was passed. However the sting comes in the risk warning attached to the call option which states:

The immediate exercise of the Purchase Option relating to any Series by B&B if the relevant Resolution is passed at the relevant Meeting and the Supplemental Trust Deed or Amendment and Restatement Agreement (as applicable) is executed in respect of such Series is only one option available to B&B and B&B may choose to exercise the Purchase Option at a later date or not at all. 

There is no time limit or 'sunset date' on the call option which means that those who do not accept run the risk of being left holding bonds with terms which give the issuer the right to redeem them at the tender offer price without making any payment in respect of accrued interest. And with the interest having been deferred on most issues for nearly 2 years already and expected to remain so until all the State funding advanced to B&B and NRAM has been repaid this represents a substantial portion of the value of the bonds. Therefore, the absence of a sunset date on the call option means those not accepting will, if the amendment resolutions are passed, probably find that their bonds trade in the market at a very substantial discount not only to the tender levels, but also to current market prices. And in fact it might make economic sense for B&B and NRAM not to exercise the option for many years, given the time value of money. One must therefore assume that they would not immediately exercise the call option.

UPDATE: 18 NOV 2011:

In a remarkable climbdown both Bradford & Bingley and NRAM have now announced that their intention is to exercise each relevant Purchase Option immediately if it accepts valid tenders of Tender Securities of a Series for purchase pursuant to the relevant Offer, the relevant Resolution is passed ! If they are true to their word then those who reject the offers and vote against should be no worse off then those who accept.

The Bradford & Bingley climbdown announcement is at:


And the NRAM climbdown announcement is at:


The original announcements of the tender offers can be found at:



In response to a number of requests I have set up forms to collect details of holders of securities included in the offers:

Add yourself to the list of Bradford & Bingley holders at:


Add yourself to the list of NRAM holders at:


If you are already on my Bradford & Bingley email list please add yourself to this list as well. I do not know where this will lead yet but experience has shown that holders being in touch with each other can lead to some remarkable results !

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