B&B’s share price is down to 36p or so, well below the 55p being sold to investors in its upcoming rights issue - that last ditch attempt to keep itself afloat.

So why, you may ask, are investors queuing up to take a loss on the deal, presently in the order of £60 million?

Could it be because, they’re shitting bricks? They worry that a second UK bank failure will be the domino that topples the rest.

They have good reason to worry. This is only the third attempt at raising extra money, after two previous rights issues failed - the first because the published management accounts were “out of date,” and the second because TPG Capital ran a mile when they saw the books.

Question is, will B&B will have any money left for their balance sheet even if this rights issue does go off successfully, what with a whopping £55m of the raised capital going on the cost of the rights issue itself?

And then there’s the small issue of B&B’s credit rating, which having been downgraded somewhat, means they can no longer act is a counterparty in interest rate swaps. They were counterparty to such a deal. It was there to hedge against exposure to rising interest rates, exposure they face as a result of their involvement with Aire Valley, a mortgage vehicle with £13 billion of B&B mortgages.

The problem for B&B, and their new investors, is that unless they can find another bank to act as counterparty to the interest rate swap, which won’t be cheap, they’ll have to start pouring tens of millions of collateral into Aire Valley.

Suddenly this £400 million rights issue doesn’t seem to cover it …

This entry was posted on Wednesday, July 9th, 2008 at 1:00 pm and is filed under Economy. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.