Investors were informed that the £150bn floating rate notes due March 2054, the £50bn 11.625 per cent perpetual subordinated bonds and the £125bn 6.625 per cent subordinated notes due June 16 2023 were all not going to be making interest payments.
The new Banking Bill, which was enacted in February, gives the Government the power to allow B&B and Northern Rock change the terms of existing subordinated debt. They can, if they choose, skip coupon payments on bonds without triggering a default, as they have now, or even move a bond within the entity.
A bond trader told Reuters that this has led to confusion in the bond market. The trader told the newswire: “There is a some weakness with bids pulled back, but there is not a lot of selling at the moment. People are just trying to work out whether this is a CDS event. It’s very cloudy.”