B&B senior, subordinated CDS payment triggered

By Natalie Harrison

LONDON (Reuters) - A credit derivatives committee has ruled that the non-payment of interest on Tier 2 bonds by mortgage lender Bradford & Bingley (BB_p.L) will trigger payment under credit default swap contracts, the International Swaps and Derivatives Association said on Thursday.

B&B (BB_p.L) said in late May it would not pay coupons on 325 million pounds of Tier 2 bonds, due June 16, June 30, and July 20 and traders last week said a grace period had expired on the first payment.

ISDA said on its web site (www.isda.org) on Thursday that all 15 members of the EMEA Credit Determinations Committee agreed that a credit event had occurred on June 30 due to failure to pay interest on the bonds.

An auction will now soon take place to determine how much sellers of protection on Bradford & Bingley senior and subordinated CDS will have to pay out, ISDA said. The auction will be administered by Markit and Creditex.

"Some resolution was needed. The committee has ruled that this is a credit event under failure to pay, which is probably a more clear cut decision than whether this was a bankruptcy credit event, which would have been much harder to prove," said one credit analyst.

In February Britain's Treasury ruled that B&B could skip coupon payments on dated subordinated bonds without triggering a default, causing uncertainty over whether non-payment would trigger a CDS event.

The ruling on Thursday was in response to a request made by Morgan Stanley (MS.N) for a determination of whether a credit event had occurred as a result of failure to pay.

Legal & General Investment Management (LGEN.L) had filed a request last month for a ruling on whether a bankruptcy event had occurred.