B&B To Pay Coupons On Low-Ranking Bank Debt

The UK's Bradford & Bingley said on Wednesday it would pay coupons on its subordinated debt issues, prompting some recovery on financial credit default swap spreads.

The UK Treasury last week said Bradford & Bingley can now skip coupon payments on about 850 million pounds ($1.2 billion) worth of subordinated bonds without triggering a default, sending spreads and subordinated bank bond prices reeling.

The failed lender said it will be paying coupons due in March, April and June on three subordinated bond issues, bringing some relief to the battered market.

"B&B will pay the coupons and obviously that is a positive for the market," said a trader.

"It will go a long way to improvement sentiment for names like RBS and HBOS as it gives a warmer feeling about what would happen in the case of nationalisation if they were to go down that route."

The Markit iTraxx five-year subordinated index tightened by 15.5 basis points to 282.5 basis points, having tightened as much as 270 basis points earlier in the day, a trader said.

The senior financials index tightened by 12 basis points to 152 basis points, the trader said.

"The indexes have tightened in, but weaker equities have limited that move," the trader said.

He warned that the subordinated bank debt market would remain very volatile.

"The problem is that there seems no rhyme or reason for decisions that are made. The authorities have done a good job or destroying confidence in assets that people hold and who is to say that they won't make more changes next week," he added. Coupon payments will be made on B&B's 150 million pounds floating subordinated issue on Mar. 31, on its 55 million pounds perpetual subordinated bonds on Apr. 7, and on its 150 million pounds undated subordinated notes on Jun. 2, B&B said in a statement.