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Northern Rock to issue guaranteed bonds to repay debt

Northern Rock PLC will issue government-guaranteed bonds to repay the tens of billions in emergency loans from the Bank of England, Britain's Treasury said yesterday in a statement to the London Stock Exchange.

The move significantly reduces the amount of capital prospective bidders would need to raise to take over the troubled mortgage lender because they would no longer face an obligation to pay back more than £25 billion (US$49 billion) to the central bank.

The bonds -- backed by mortgages, securities and consumer loans -- will be issued to raise money to pay back the Bank of England, the statement said.

The proposed financing structure will make it easier for bidders to arrange funding to take over Northern Rock under difficult credit conditions.

New bidders will be allowed to submit proposals to save the troubled bank by Feb. 4, the statement said.

Treasury Chief Alistair Darling planned to make a statement to Parliament later yesterday to expand on the plans put forward by Goldman Sachs Group Inc to restructure the bank to make a private sale easier.

The Treasury said a private sale was its preferred option but warned temporary nationalization would be necessary to protect taxpayers' money if no sale was agreed. It ruled out putting the company into administration.

Northern Rock's board said in a statement it welcomed the Treasury's announcement, saying a private sector solution was preferable and that it was in shareholders' best interests.

Northern Rock Shares rose 40 percent on the London Stock Exchange mid-morning yesterday to £0.905.
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