Senior Fortis and B&B bonds seen likely to pay out

By Natalie Harrison and Jane Baird

LONDON (Reuters) - Senior bondholders in both bank Bradford & Bingley and Belgian-Dutch financial group Fortis can expect to be repaid after both banks were nationalized at the weekend.

But there is less certainty concerning high-ranking Bradford & Bingley debt maturing in more than six months and Fortis debt issued out of its holding company, analysts say.

Nigel Myer, a bank credit analyst at Dresdner Kleinwort, said the UK government has effectively "given a guarantee on all senior creditors of Bradford & Bingley, but not its subsidiaries."

The guarantee becomes subject to European Union approval after six months, however, which may leave senior bondholders that have debt maturing after this date more vulnerable if the UK guarantee is not ratified under state aid rules.

"The government worry about it. They intend for that to continue to persist for all pre-existing obligations, but they can't promise it will without EU approval," Myer added.

Five-year credit default swaps on Fortis tightened by about 200 basis points to 425 basis points, but there were no trades in Bradford & Bingley CDS, a trader said.

"People are still trying to figure out the Bradford & Bingley situation, but I would guess that the senior CDS should tighten to about 400 basis points, given the guarantee," he added.

B&B CDS were trading at 37 percent upfront on Friday. That means that it costs 3.7 million euros plus 500,000 euros a year to buy protection on 10 million euros of the bank's senior debt.