The Wall Street Journal-20080122-Credit Crunch- U-K- Plan Aims to Get Northern Rock Bids
Return to: The_Wall_Street_Journal-20080122
Credit Crunch: U.K. Plan Aims to Get Northern Rock Bids
The British government is open to new offers for mortgage lender Northern Rock PLC, Chancellor of the Exchequer Alistair Darling told United Kingdom lawmakers yesterday, as he outlined a rescue package, as expected, aimed at attracting bids.
The U.K. Treasury said it would guarantee bonds issued by the mortgage lender in exchange for fees and an "appropriate share" of Northern Rock's potential equity returns. The government believes "there is no chance of a private-sector deal entirely with private- sector finance in the near future," Mr. Darling said. The bonds are likely to have as many as five-year maturities.
The government has started talks with a consortium led by Virgin Group Ltd., private-equity group Olivant Advisers Ltd., as well as Northern Rock's board, which is pushing a standalone option for the bank, he said, and remains open to advances from others before its Feb. 4 bid deadline.
Northern Rock became the U.K.'s highest-profile casualty of the global credit crisis in the fall when the bank turned to the Bank of England for emergency funding. That led to a run on the bank, the U.K.'s first in a century. The Treasury, advised by Goldman Sachs Group Inc., is trying to find a buyer for the bank.
Offers from Virgin Group and Olivant Advisers have stalled in the past weeks because of uncertainty over financing amid a global credit crisis that has seen banks back off from lending and bond issuers struggle to sell their debt. Any owner was faced with over time repaying more than GBP 25 billion ($48.86 billion) that Northern Rock has tapped in emergency funds from the Bank of England; the government guarantee on this debt now makes that possible.
Mr. Darling said any deal was extremely likely to need government support, given the current lack of availability of capital in markets. That support would need European Commission approval, he said.
The European regulator has to decide whether the rescue package amounts to state aid for the troubled bank and give its authorization. The European Union approved rescue aid in December -- the deposit- guarantee of Sept. 17 and some guarantees made Oct. 9. Its six-month clock started running on Sept. 17, so the U.K. has until March 17 to come up with another solution. If there is no solution by March 17, then the U.K. will need to discuss restructuring aid with the EU.
Olivant's preliminary offer for the bank involves creating a new management team headed by Chairman Luqman Arnold, a capital injection of GBP 800 million via a rights issue and taking a 15% stake. "We have always said our plan seeks to find common ground between all stakeholders in Northern Rock by restoring the fortunes of the company and its brand," Olivant said in a statement.
---
Charles Forelle, Natasha Brereton and Margot Patrick contributed to this article.
