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Blow for Northern Rock credit holders as it halts bond payouts
NATIONALISED lender Northern Rock shocked bond markets yesterday by ceasing payouts on several of its bonds in a bid to hoard cash ahead of a further £3bn government bailout.
The value of the failed sub-prime mortgage lender’s credit plummeted as it announced it is to delay all payments where it is legally possible.
The lender is keen to boost its capital levels, hoping this will win it approval from the European Commission for the bailout, which will see it split into a “good bank” and “bad bank” by the government.
But, the value wiped off markets yesterday will anger the insurance, pension and hedge funds that own the bonds. Creditors could file a default claim, with an eye to forcing credit default swap insurers to cover the payments.