Chancellor plans to convert Northern Rock debt into bonds

by Gill Montia

Story link: Chancellor plans to convert Northern Rock debt into bonds

The Chancellor of the Exchequer, Alistair Darling, has unveiled details of a plan aimed at expediting a private sale of Northern Rock.

The proposals include the conversion of the £25 billion borrowed by the mortgage bank from the Bank of England, into bonds.

These would be guaranteed by the Treasury, to encourage take-up by private investors.

This would, in effect, turn Northern Rock’s debt into government bonds or gilt-edged stock.

The scheme, which has been developed by investment bank and adviser to the Government, Goldman Sachs, was approved by Prime Minister Gordon Brown in the last few days.

The Bank of England has extended its loan facility until 17th March but the proposals still mean that the taxpayer would be exposed to Northern Rock for a much longer period than expected.

Bidders for the beleaguered lender have until 4th February to add detail to the proposals and it is reported that Sir Richard Branson’s Virgin Group is preparing to make an improved offer.

Virgin is rumoured to be prepared to reduce its proposed stake in Northern Rock from 54% to 45%, a move that would allow the bank’s existing investors a bigger share in any recovery in the price of Northern Rock stock.

A response from Olivant, the other interested party, is still awaited.