Virgin Money Issues Junior Debt to Repay Government’s Investment

Virgin Money Holdings Plc, the banking unit of billionaire Richard Branson’s Virgin Group Ltd., issued new-style debt capital securities to repay the U.K. Treasury’s investment in the lender.

The Newcastle-upon-Tyne, England-based company priced 160 million pounds ($272 million) of additional Tier 1 securities to yield 7.875 percent, or 579 basis points more than the benchmark mid-swap rate, according to data compiled by Bloomberg. The notes replace 150 million pounds of Tier 1 capital securities held by the Treasury that the lender bought back for 154.5 million pounds today.

Branson, whose interests range from space travel to deep-ocean exploration, completed the purchase of Northern Rock Plc from the government in January 2012 after the housing lender was hit by a run in September 2007, paying part of the price with bonds. The debt issued today shifts the risk from Virgin’s banking activities to private investors from the Treasury.

“Investor feedback was very positive and and the transaction was comfortably oversubscribed,” Virgin Money Chief Executive Officer Jayne-Anne Gadhia said in a press release today.

Virgin Money is the first of the U.K.’s “challenger banks” to issue new-style debt capital securities designed to sustain losses if the issuer fails. Regulators worldwide are seeking to ensure taxpayers won’t be left on the hook for banks’ losses as they were when Northern Rock had to be rescued in February 2008.

The undated notes, which can be repaid after five years, will convert to equity if the lender’s Tier 1 capital ratio falls below 7 percent, Bloomberg data show.

To contact the reporter on this story: John Glover in London at johnglover@bloomberg.net

To contact the editors responsible for this story: Shelley Smith at ssmith118@bloomberg.net Michael Shanahan, Jennifer Joan Lee

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