Decision seen imminent on B&B CDS payment -traders
LONDON, July 2 (Reuters) - A credit derivatives committee is expected to decide soon whether British lender Bradford & Bingley triggered payment under credit default swap contracts by not paying interest on subordinated debt, traders said.
B&B (BB_p.L) said in late May it would not pay coupons on 325 million pounds ($534 million) of Tier 2 bonds, due June 16, June 30, and July 20. On Thursday, traders said a grace period had expired on the first payment.
"There was a 15-day grace period, so they defaulted yesterday," said one trader. "A decision should now be made on whether this is a CDS event."
A spokeswoman for B&B said she had no knowledge of any grace period. "We wrote to bondholders to say that we were deferring coupon payments. As far as we are concerned, this does not constitute a default because the government changed the terms and conditions on these bonds," she said.
In February, Britain's Treasury ruled B&B could skip coupon payments on dated subordinated bonds withought triggering a default, but it is still unclear whether non-payment will trigger a CDS event.
Legal & General Investment Management (LGEN.L) filed a request last month with the EMEA Credit Determinations Committee for a ruling on whether a bankruptcy event had occurred, according to the International Swaps and Derivatives Association website (www.isda.org). ISDA was not available to comment.
"The impression I get is that if the CDS market is to have any credibility, this should be determined to be a credit event," said Simon Adamson, a credit analyst at CreditSights.
"This is a very specific case for B&B because it is extremely unusual for the terms and conditions of a bond to be changed in this way. But on the face of it, a missed coupon on Lower Tier 2 dated bonds would be a CDS event."
If this is deemed a credit event, there could be more such determinations going forward for other lenders including Northern Rock (NRKx.L), which is in the process of restructuring, he said. (Reporting by Natalie Harrison and Jane Baird) ($1 = 0.6082 pound)
