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SOURCE---IC Daily

If you own Bradford & Bingley's perpetual subordinated bonds, bad luck. You'll shortly be getting a letter through the post explaining why the now state-owned bank isn't going to make an interest payment due in July, or at any other time in the near future. This is believed to be the first time a UK bank has defaulted on subordinated debt interest, but it may well not be the last.

BAD CONNECTION so quick cut and paste job

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SOURCE---IC Daily

If you own Bradford & Bingley's perpetual subordinated bonds, bad luck. You'll shortly be getting a letter through the post explaining why the now state-owned bank isn't going to make an interest payment due in July, or at any other time in the near future. This is believed to be the first time a UK bank has defaulted on subordinated debt interest, but it may well not be the last.

BAD CONNECTION so quick cut and paste job

The savings bank rebranding to Santander can't come fast enough...

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not strictly true that it's defaulted. our corrupt government has changed the law to allow them to defer interest payments to bondholders.

The government is insisting it milks the cash out at the expense of our pensions......

Given the usual wording of similar subordinated notes, they are typically dependent on no change in the law........

oh, and you think this is bad - just look at what Obama is trying to do to the GM bondholders...... his problem is, successive regimes have encouraged people to have just this sort of debt in their 401Ks........ - he is going to be in all sorts of trouble over it...

Edited by Rachman

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not strictly true that it's defaulted. our corrupt government has changed the law to allow them to defer interest payments to bondholders.

The government is insisting it milks the cash out at the expense of our pensions......

Given the usual wording of similar subordinated notes, they are typically dependent on no change in the law........

oh, and you think this is bad - just look at what Obama is trying to do to the GM bondholders...... his problem is, successive regimes have encouraged people to have just this sort of debt in their 401Ks........ - he is going to be in all sorts of trouble over it...

lots of unintended consequences from these policies - and none of them good

the crumbling rule of law

The Crumbling “Rule of Law”

One of the greatest assets the United States and much of the G7 has had is the legal system which allows for private contracts that are UPHELD in the courts. As a lender, borrower or investor, you could expect agreements to be protected unless they are contrary to existing laws. NO MORE. The Obama Administration removes the security from secured bondholders and REWARDS unsecured lenders who are POLITICALLY connected. The CRAMDOWN legislation for mortgage modification was thankfully defeated in the senate, which would have allowed BANKRUPTCY court judges to rewrite mortgage balances and interest rates. The sponsors of this monstrosity were trying to up-end the Rule of Law and Contracts and substitute the whims of the trial judge. INSANE.

No sooner had the capital markets heaved a sigh of relief than Chrysler declared bankruptcy and the OBAMA Administration CAR CZAR stripped “secured lenders” of their legal rights. The Administration then elevated the claims of the UAW (United Auto Workers) and the government above that of secured lenders, awarding themselves almost 90% of the company and sweeping small crumbs to the actual owners of the senior claims.

Take a look at what Porter Stansberry (www.stansberryresearch.com ) had to say:

"Well, let's pretend you're GM's bondholders and the $200 I owe you is the debt in question. The government has come in and said, 'Look, we know Porter owes you $200... but for the good of the country... we want you to accept $20 instead. We'll take $100 for helping straighten out the situation. And we'll give $80 to the union.' Would you accept those terms?" "No way!"

“It never ceases to amaze me how generous people like to be with other people's money. Or how quickly people with no skin in the game toss around words like "fair" and "greedy." I don't care what you think of OBAMA!... What he said about Chrysler's secured bondholders was not only slanderous... it was the kind of political rhetoric that will destroy America's capital markets. You cannot vilify creditors – or else there will be no capital available to lend.

While many stakeholders made sacrifices and worked constructively, I have to tell you some did not. In particular, a group of investment firms and hedge funds decided to hold out for the prospect of an unjustified taxpayer-funded bailout. They were hoping that everybody else would make sacrifices, and they would have to make none. Some demanded twice the return that other lenders were getting.

I don't stand with them. I stand with Chrysler's employees and their families and communities. I stand with Chrysler's management, its dealers, and its suppliers. I stand with the millions of Americans who own and want to buy Chrysler cars. I don't stand with those who held out when everybody else is making sacrifices. And that's why I'm supporting Chrysler's plans to use our bankruptcy laws to clear away its remaining obligations so the company can get back on its feet and onto a path of success.

OBAMA's remarks are demonstrably false. A group of 20 creditors, the self-dubbed "non-TARP Chrysler lenders," refused the government's lowball offer for their secured bonds. Through a press release, the "non-TARP Chrysler lenders" said they offered to take a 40% haircut on their bonds, even though they were senior creditors and lenders lower down the priority chain were "being given recoveries of up to 50% or more and being allowed to take out billions of dollars."

And Obama's bit on standing "with Chrysler's employees and their families and communities" is nonsense. Who do you think invests in these hedge funds that refused the deal? Pension funds, teachers' unions, and school endowments to name a few... Should these "communities" be punished for the sake of Chrysler's employees... many of whom are union employees who stubbornly refused to take pay cuts until it was too late?

That's the big problem with socialism: Instead of allowing the market to decide who wins and who loses, you have politicians picking. Just imagine what's going to happen to the lending decisions of the banks that have taken TARP money... It's going to be a debacle. Welcome to Amerika.

I couldn’t have said it better myself. Bravo, Porter. Now let’s look at a notable and quotable from the www.wsj.com and http://blog.getliberty.org:

In the Chrysler deal, the [united Auto Workers] were unsecured creditors and the Chrysler bondholders were secured creditors. The bondholders received 28% of the value of their $6.9 billion in bonds in cash; the Union will receive stock worth approximately $4.2 billion, and a note for an additional $4.58 billion, which represents 82% of the value of their claim. Either the government negotiators have dyslexia and have made a terrible mistake in their paperwork, or this is political payoff writ large. Is this not the equivalent of financial waterboarding? And thus we enter a brazen new era of government, when the White House is openly complicit in the theft of, as a matter of fact is directing, the looting of private property from investors. Welcome to the Rule of Man, or as the President calls it, change we can believe in!

The key is “Rule of Man”, kind of like dictatorships. Now let’s take a look at another notable and quotable written by Slate (a progressive website, i.e., liberal) on the subject of leaning on TARP recipients from today’s www.wsj.com :

“The rationale for the [auto] bailout was that a bankruptcy would kill car sales, so the government had to step in and negotiate all the bankruptcy-style concessions without actually having a bankruptcy. But Obama was unwilling to get the U.A.W. to make the bankruptcy-style concessions that would be necessary to have a viable Chrysler. And Chrysler wound up in bankruptcy anyway. Prediction: It will either fail or suck up continuing annual taxpayer subsidies in the billions. In the process it will keep flooding the market with cars and make it harder to save GM and Ford. It didn't have to be that way. . .

And there is something creepy in the way many analysts simply accept that, of course, banks receiving TARP funds must now do Obama's bidding on unrelated matters like the Chrysler bankruptcy. This is a long way from JFK using his presidential power to face down a steel price hike -- a long way toward an unpleasant economic model that creates at least the potential for political thuggery that preserves capitalism's inequalities without its freedoms and efficiencies”

This is set to be repeated in the unfolding bankruptcy of General Motors, creating TWO new government controlled entities along the lines of Fannie Mae and Freddie Mac, AIG, Citigroup, etc. Why would anyone invest in America or any business involved with the government if the agreements are not worth the paper they are written on, and the private sector just becomes PAWNS of the public servants and their CRONY capitalist PARTNERS? Just like many who invested in the other GOVERNMENT controlled entities, they are now finding out the contracts are written in “DISAPPEARING INK”! This behavior can be seen in Venezuela; now we know why the chief executive so warmly embraced Hugo Chavez. Capitalism is on its DEATHBED in the US and G7

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Guest sillybear2
Shocking.

Anyone would think they were trying to destroy everything.

State failure, 100% guaranteed, protect yourself :lol::ph34r:

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State failure, 100% guaranteed, protect yourself :lol::ph34r:

That's it!

Obama is Injin!

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These are SUBORDINATE BONDS.

The purpose of them is to ABSORB LOSSES when the bank is in distress, in order than the senior creditors are protected.

B&B IS in distress given that its asset portfolio is deteriorating markedly - hence the coupons on subordinated bonds are being defered.

This is exactly what is supposed to happen.

First the shareholders get wiped out - and who thinks that any B&B shareholder will see a cent?

Then the subordinate creditors get wiped out.

Simples.

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The important question is; will it trigger credit default swaps?

Does a deferrment equate to a credit default event?

I'll bet the powers-that-be will find a way to make sure it doesn't!

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The important question is; will it trigger credit default swaps?

Does a deferrment equate to a credit default event?

I'll bet the powers-that-be will find a way to make sure it doesn't!

It may (or may not) trigger a CDS event on the SUBORDINATE DEBT.

In any case the market entirely expects the subordinate debt to be impaired, so it is no news.

But it certainly won't trigger a CDS event on the senior debt, which is what really matter.

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It may (or may not) trigger a CDS event on the SUBORDINATE DEBT.

In any case the market entirely expects the subordinate debt to be impaired, so it is no news.

But it certainly won't trigger a CDS event on the senior debt, which is what really matter.

Would it be too much to ask you to explain why?

My ignorance needs to be addressed...........

Thanks in anticipation.

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Would it be too much to ask you to explain why?

My ignorance needs to be addressed...........

Thanks in anticipation.

Simples again.

The senior debt hasn't defaulted.

It has made all the payments it needs to, and, further, I think it nay be government guaranteed too.

CDS will (generally) reference the underlying BONDS (or other obligations) that would need to default to it to be a trigger event.

Failure to pay interest on subordinate debt just won't be a trigger event for the senior CDS.

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These are SUBORDINATE BONDS.

The purpose of them is to ABSORB LOSSES when the bank is in distress, in order than the senior creditors are protected.

B&B IS in distress given that its asset portfolio is deteriorating markedly - hence the coupons on subordinated bonds are being defered.

This is exactly what is supposed to happen.

First the shareholders get wiped out - and who thinks that any B&B shareholder will see a cent?

Then the subordinate creditors get wiped out.

Simples.

Not quite - the purpose of subordinated bonds is to raise money for the company be selling debt, and they do rank behind the other senior creditors. That's why the rate's higher......

IF there is a default, then they get paid out in order of subordination - and that is why they carry a higher coupon - typically they won't be paid out till ALL of the senior is paid. It also primarily allows the senior (debt to be got away in a bigger amount at a lower rate, because the senior holders have the comfort that there is someone else's bond subscription monies to burn before they lose out on their return. However, it is also almost always the case that if the bonds default (as contemplated in the prospectus), then the bondholders (or 2/3 of them (and whether that means of ALL bondholders or just of a particular class is always up for drafting argument...)) can call an event of default. Often the unsecureds don't want to because there won't be much left for them after the secureds are paid - so it's often self regulating. HOWEVER, the government has ruined that by changing the law to suit them - which is an utter disgrace......

this is NOT a liquidation event, it is a choice not to pay - bear in mind it's backed by government funny money - they are simply abusing the law to hide the true state of the B&B - and you just wait to see what trick they play on Granite - when they do the same at NRK.....

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