Nov. 19 (Bloomberg) -- Northern Rock Plc's 25 billion-pound ($51 billion) loan from the Bank of England won't be extended indefinitely, limiting the value of potential bids for the U.K. bank that was bailed out in September.

Interested parties ``should not assume at this stage that the current Bank of England loan facilities will be available'' beyond February, the Treasury said in a statement. All offers for the Newcastle, England-based lender are ``materially below the market price'' on Nov. 16, Northern Rock said in a statement today.

The bank's shares dropped 21 percent in London on concern about the size of bids from companies including J.C. Flowers & Co. and Richard Branson's Virgin Group Ltd. Northern Rock was forced to ask the central bank for emergency aid on Sept. 14, sparking panic among depositors that led to the first run on a U.K. bank in more than a century.

```Materially below' could mean half the market value,'' said Colin Morton, a fund manager at Leeds-based Rensburg Sheppards, which oversees about 13 billion pounds. ``Anyone who owns this stock is taking a complete gamble.''

Northern Rock shares fell 28.4 pence to 104.2 pence, the biggest decline since Oct. 1. The bank's market value has slumped to 438.9 million pounds from 2.7 billion pounds in August. Moody's Investors Service cut Northern Rock's financial strength ratings today, citing the ``protracted delay'' in finding a buyer.

`Banana Republic'

A jump in credit costs in August and September left Northern Rock, which specializes in mortgage lending, unable to write new loans, forcing it to seek aid from the Bank of England. That announcement sparked depositors to stand in line to withdraw their savings in scenes that caused Richard Lambert, the country's chief business lobbyist, to liken the country to a ``banana republic.''

Chancellor of the Exchequer Alistair Darling said the government guarantee of deposits at Northern Rock will remain in place while instability persists. Loans to the bank will have to be repaid at an ``appropriate'' time and rate, Darling told Parliament in a statement.

The bank owes the Treasury ``a very small amount of money,'' in cash borrowed at a premium rate which may be rolled up over a period of time, Darling said. The debt will be repaid when a decision about Northern Rock's future ``moves to the next stage.''

Any bid for Northern Rock that requires public money ``will be evaluated on its merits against the authorities' stated objectives,'' the Treasury said.

Virgin Offer

The Bank of England would need to support Northern Rock for at least a year to make an investment viable, Dubai International Capital LLC, a backer of the Virgin-led bid, said today. That would buy time for Virgin and its partners to lure back customers.

``No investor is going to take on that risk unless they are fully comfortable they can get it back to a commercial capital structure within 12 to 18 months,'' Sameer al-Ansari, Dubai International's chief executive officer, said in an interview in the Gulf emirate. ``If not, the cost of capital is way more than any money you'll make on your mortgages.''

Blackstone Group LP, Citigroup Inc., and Merrill Lynch & Co., the bank's advisers, have begun talks with bidders to clarify the proposals and are also in discussions with financiers regarding refinancing and reorganizing the company, Northern Rock said.

The company has received proposals which range from investing in the bank to acquiring different parts of its business, it said. Northern Rock expects to receive further ``expressions of interest'' in the next few days, it said.

Applegarth Resigns

Branson's Virgin Group and Olivant Advisers Ltd. disclosed competing proposals for the bank on Nov. 16, the same day Northern Rock said Chief Executive Officer Adam Applegarth would step down. Branson, backed by investors including American International Group Inc., yesterday pledged to pay about 10 billion pounds of the bank's credit line to the Bank of England upfront.

Royal Bank of Scotland Group Plc and Citigroup Inc. are in the funding syndicate for Virgin's bid, Branson said yesterday. Media reports of a 20 billion-pound loan being lined up to fund the bid were ``not far off the mark,'' he said.

Other potential bidders are New York-based buyout firms J.C. Flowers, which has outlined a team headed by former government adviser Paul Myners and Cerberus Capital Management LP. Olivant, the investment firm set up by former UBS AG head Luqman Arnold, wants to keep the bank's brand and invest a minority stake.

Arnold's Experience

``Arnold has been involved in restructuring businesses in the past, including Abbey National, which gives him arguably some credibility,'' said James Hutson, a London-based analyst at Keefe, Bruyette & Woods Ltd. He has a ``market perform'' rating on the stock, with a target price of 150 pence.

Darling, Bank of England Governor Mervyn King and Callum McCarthy, chairman of the Financial Services Authority, have all come under criticism for the way they handled the collapse of Northern Rock.

The main opposition Conservative Party called for the government to disclose full details of the rescue package so far and for Darling to resign if it emerges that he acted against the interest of taxpayers.

``His job is on the line,'' George Osborne, who shadows Darling in Parliament for the Conservatives told BBC Radio 4.

The Treasury said that the help provided to Northern Rock so far would be regarded as state aid by the European Union and that any future help would have to be referred to the European Commission, the EU's executive arm, for approval.

Aid Debate

Further aid from the government may also hold ``potential risk to value and execution,'' of any bid for the bank because the EU may impose ``adverse conditions'' and delay approval for any bid relying on state funds.

The government expects ``the costs and risks associated with Northern Rock to be borne to the greatest extent possible by the current and future private sector providers of capital,'' the Treasury said.

In future, Northern Rock will have to satisfy regulators that it has a ``sustainable long term capital structure'' and that its business plan is ``viable in the medium term,'' the Treasury said. Regulators will also favor bids for the lender that minimize disruption for its customers.

To contact the reporter on this story: Gonzalo Vina in London at gvina@bloomberg.net;

Last Updated: November 19, 2007 12:02 EST