EC Removes Restraints on Northern Rock, Bradford & Bingley Bonds

The European Commission removed restrictions on the redemption and payment of interest on the debt of Northern Rock (Asset Management) Plc and Bradford & Bingley Plc, the two U.K. lenders nationalized in 2008.

The EC removed the restraints on the subordinated bonds because the rules are now expected to increase, rather than reduce, the cost of the U.K. government winding down the banks after their financial performance improved, the companies said in separate statements today. Bondholders will only be repaid if their entire liability with the bank is extinguished and they own less than 130 million pounds ($213 million).

Northern Rock was the first British casualty of the U.S. subprime-mortgage market collapse and was taken over by the state more than six years ago after suffering the first run on a U.K. bank in more than a century. Bradford & Bingley was rescued the same year after credit markets froze following Lehman Brothers Holdings Inc.’s collapse. U.K. Asset Resolution Ltd. owns both lenders and has repaid 10.4 billion pounds of government funding, reducing its outstanding taxpayer debt to 38.3 billion pounds, it said in June.

The restrictions, which banned the exercise of call options and coupon payments on the banks’ subordinated bonds, were originally imposed to ensure debt holders contributed to the banks’ restructuring, because both were assumed to be wound down in an insolvent state.

Bradford & Bingley and NRAM “are considering all options in light of the announcement and the terms and conditions of the debt instruments,” they said today.

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