TPG walk-out sparks crisis at B&B

City investors have stepped in to rescue Bradford & Bingley after its private equity suitors walked away...

by
Last Updated: 31 Aug 2010

More drama at poor old B&B: just days before a shareholder vote to confirm a fundraising round led by private equity firm TPG, the US group has pulled the plug on the deal. It chose to walk away after the (ever-reliable) credit rating agency Moody’s downgraded B&B’s rating by two notches, triggering a get-out clause in TPG’s deal agreement. Clearly deciding that this made B&B a bum deal, it promptly hot-footed it back to Texas, leaving the bank high and dry.

Fortunately for B&B, it’s got some heavyweight City investors who have promised to make up the £180m shortfall out of their own pockets (with significant encouragement from the FSA, according to the BBC). The key backers of the new fundraising plan will be Standard Life, Legal & General, the Pru, and HBOS arm Insight – the same four institutions that supported a rival bid by Clive Cowdery’s Resolution vehicle last week, in protest at the terms of the TPG deal. That got short shrift from the B&B board - this time we suspect their cash was a bit more welcome...

It’s obvious why TPG decided to walk away: the downgrade will make it more expensive for B&B to borrow money, and the private equity firm obviously did its sums and decided that it wasn’t worth getting out of bed for a paltry ‘Baa1’-rated mortgage lender. As, under the terms of the deal, it was perfectly entitled to do. But it will do its reputation no good at all: private equity firms often bleat about being patient long-term investors, so deciding to cut and run like this is likely to damage TPG’s chances of doing any more deals in this sector.

Executive chairman Rod Kent will also be under the cosh – the collapse of the TPG deal, which he’s been so keen to back despite shareholder opposition, leaves his credibility in tatters. Now that it’s turned out that he was kissing the wrong frog all along, we’d be amazed if he survives the fall-out.

Still, it looks as though B&B’s future is safe enough. If the fundraising had fallen through at the last moment, it would have been a disaster for the bank; but thanks to Standard Life and co, plus its underwriters Citigroup and UBS, it can press on with a revised rights issue. So it’s going to get its £400m, come what may – and this will boost its capital ratio to 8-10% (giving it just about the strongest balance sheet of any bank in the City).

But with more of its buy-to-let mortgage borrowers expected to fall behind on repayments in the coming months, there may be more bad news to come for the battered bank (hence the 10% drop in its share price this morning). Never mind Kent; not even Superman could prevent this being a grim year for B&B...



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