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October 1, 2007

Northern Rock bondholders join forces

by Gill Montia

Story link: Northern Rock bondholders join forces

As discussions over the future of Northern Rock continue, the bank’s bondholders will be meeting in the next few days to develop a strategy aimed at preventing it from being sold off cheaply.

The bondholders have appointed Houlihan Lokey & Zukin, the investment bank, and law firm Bingham McCutchen, to oversee their interests, which could suffer if the bank is forced into a restructuring.

Hedge funds, private equity groups and distressed-debt investors have all shown an interest in Northern Rock and it has been suggested that the bank’s £105 billion mortgage book could be broken up and sold at a discount.

Such a move would wipe out all equity and preference shares in the business and the bondholders are expected to approach the Bank of England this week, to seek assurances that this will not happen.

Northern Rock has borrowed £7.75 billion from the Bank of England in the past two weeks. The rate of interest payable is around 7%.

It is rumoured that a further £1 billion will be needed to support Northern Rock in the coming week, while other estimates state that the bank will need to raise £2.7 billion over the next few months.

Both the Treasury and the Financial Services Authority are looking for a quick sale of Northern Rock.

The Treasury in particular is concerned that shareholders should not profit from a sale, while the bank is being supported by the Bank of England.

Last week Northern Rock confirmed it had received several approaches, one of which is thought to be from JC Flowers, the private-equity group.

 

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