Saturday, Feb 21, 2009
How to square a debt circle
Bloomberg: Bradford & Bingley Bond ‘Madness’ May Hurt Capital
The subordinated debt of Bradford and Bingley need not pay the interest due to the holders, as it may be deferred. Although obviously this wasn't in the original contract, the UK government has retrospectively rewritten bond agreements so that although the money is not paid, it doesn't qualify as a default ! Because such deferrals are part of the original contract, not the actual original contract of course, but the new one which now represents the original one. Apparently this has damaged sentiment in the market?! How fortunate that debts due can be deferred, like mortages, and how much tax we need to pay. This almost certainly -won't- lower bond values, exacerbating a credit crunch...
Posted by stillthinking @ 01:48 PM (371 views) Add Comment
1 Comment
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1. Caffeine said...
Hmm, B&B bond interest is 'temporarily' deferred and yet the bond is technically not in default.
So bond sellers/bondholders yell foul and CDS rates on all financial company bonds raises in response to this situation...
Well, this trick can only be pulled once, future CDS contracts would be written on the basis that deferred interest would be like a default and would trigger a partial or full payoff in this kind of situation.