Bradford & Bingley – are the new funds truly committed?

Time to RTFC again. Here is a link to the Supplementary Circular and here are the key points:

Amongst other things, the Revised Underwiting Agreement confers on the Sponsors, acting together, the right to terminate the Revised Underwriting Agreement prior to the date of Admission in the event of:

…

(iii) any statement contained in the relevant documents being or having become untrue, incorrect or misleading in any respect…

(vi) other events occurring, including certain material adverse changes or prospective material adverse changes relating to the Group, certain events relating to the occurrence of adverse market conditions….

The Revised Underwriting Agreement does not give the Underwriters an express right to terminate the agreement if there is a credit rating downgrade.

Note the use of “express” in the final sentence above. IANAL, but I suspect that a ratings downgrade would still constitute a MAC and hence a get-out clause for the underwriters.

Also, if this is supposed to be absolutely cast-iron underwritten by Citi, UBS and the sub-underwriters, why is there still a MAC clause at all?

Citi and UBS are on the hook for some enormous potential losses in this deal. I’m sure they are looking at any possible way to get out of their obligations. The key unknown in this scenario is the FSA’s role – and I doubt we will ever know what deals have been done behind closed doors to ensure that this deal gets away.

On balance, this deal looks like it will get done but I don’t think it is the sure thing that is being reported in the press.

TPG walks away

As I noted here, TPG could walk away from the Bradford & Bingley deal if B&B’s debt was downgraded by one notch. B&B’s debt has been duly downgraded, and TPG has indeed, walked away. I thought that the deal would get repriced significantly lower, but it appears that the FSA has corralled a number of institutions into supporting the existing issue.

Although Robert Peston is probably right that TPG will be criticised for walking away, it was spelt out in the circular that that was exactly what they would do if B&B’s debt was downgraded, so it’s difficult to see in reality what TPG has done wrong. In fact, this is once more an awful failure by B&B and its advisers. It must have been clear that there was a high likelihood of the debt being downgraded (it was on negative watch after all). 

A variation on a familiar four letter acronym should become a mandatory part of the FSA exams — RTFC.