DBRS Downgrades Bradford & Bingley’s Subordinated Notes Rating to C

DBRS has today downgraded Bradford & Bingley plc’s (B&B or the Company) Subordinated Notes rating to C from B and Bradford & Bingley Capital Funding, L.P.’s Perpetual Preferred Securities rating to C from B (low). Concurrently, the aforementioned ratings were placed Under Review with Negative Implications. Today’s rating action does not impact B&B’s others ratings, including the Company’s BBB (high) Deposit and Long-Term Senior Debt ratings, which remain Under Review with Developing Implications, where they were place on 29 September 2008.

Today’s rating action follows B&B’s recent announcement that it has resolved not to make the next scheduled interest payment on two of its dated subordinated notes, including the GBP 150 million floating rate dated subordinated notes due March 2054 and GBP 125 million 6.625% dated subordinated notes due June 2023, and one of its perpetual subordinated bonds, the GBP 50 million 11.625% perpetual subordinated bonds. The rating action considers DBRS’s concern that B&B will likely follow this precedent in the future on similar subordinated debt, as such DBRS believes it is increasingly likely that holders of B&B’s subordinated debt will not receive timely payment of interest and principal when due and holders of perpetual preferred securities are less likely to receive scheduled distributions. DBRS notes that under the Bradford & Bingley plc Transfer of Securities and Property etc (Amendment) Order 2009 (the 2009 Order), principal and interest which would otherwise come due and payable to holders of dated subordinated debt issued by B&B may be deferred until the Company’s debt to the Financial Services Compensation Scheme (FSCS) has been repaid.

The Under Review with Negative implication reflects DBRS’s view that B&B will choose to temporarily forgo principal and interest payments when due in order to preserve capital. Accordingly, DBRS views recovery on the subordinated bonds as reduced and may be prolonged. DBRS will continue to monitor statements and actions by Bradford & Bingley’s Board towards these instruments, providing comment and may take further rating actions as warranted.

Furthermore, DBRS continues to monitor the status of the guarantee arrangements put in place by HM Treasury (Treasury) to safeguard certain wholesale borrowings, and derivatives transactions of, and wholesale deposits with Bradford and Bingley. The Treasury has sought approval from the European Commission to approve the continuation of the guarantee arrangements put in place in September 2008. The guarantee arrangements will remain in place while the Commission considers the Treasury’s request. If approved by the Commission, the guarantee arrangements will continue until the wind-down of Bradford & Bingley is completed. The extension of the guarantee could have a positive rating impact on instruments covered by the guarantee.

Notes:
All figures are in GBP unless noted otherwise.

The applicable methodologies are Analytical Background and Methodology for European Bank Ratings, Second Edition, and Enhanced Methodology for Bank Ratings – Intrinsic and Support Assessments which can be found on our website under Methodologies.

This is a Corporate (Financial Institutions) rating.