Troubled mortgage lender Northern Rock plc has gone to court to block the publication of information in a confidential memorandum circulated to potential bidders.
The Newcastle, England-based group, which has been on the auction block since mid-September after turning to the Bank of England for emergency credit, said Wednesday it obtained an injunction restricting publication of the leaked memo. Information in the memo, which suggested Northern Rock could still be heavily indebted to the Bank of England in three years’ time, was published in outlets including the Daily Telegraph, Financial Times and their respective Web sites starting Nov. 8.”The company believes that further speculative reporting based on the illustrative information in the memorandum may jeopardize the complex discussions and negotiations taking place in connection with its strategic review,” said Northern Rock, which was represented in court by law firm Schillings.It added that the memo intended “to illustrate the potential financial impact” of various “illustrative transaction structures” on its business and shouldn’t be taken as guidance to the market. It was sent out to about 50 bidders earlier this month. A Northern Rock spokesman wouldn’t comment on any of its contents.The injunction, obtained in the High Court Tuesday, was a partial one on the use of new information from the memo rather than the blanket one Northern Rock was seeking.But the information already in the public domain will fuel fears that the U.K. may find itself in breach of European Union state aid regulations by propping up the lender for such a long period.The assistance from the Treasury and the Bank of England, which includes a blanket guarantee on the value of all Northern Rock deposits, could also backfire on the government if the taxpayer is seen as bearing the brunt of a misguided strategy at the lender.Northern Rock, under CEO Adam Applegarth, became the U.K.’s fifth-largest mortgage lender by funding well over 70 percent of its funding requirements from the wholesale markets rather than customers’ deposits.It has already borrowed over �20 billion ($41 billion) from the Bank of England at an undisclosed penalty rate.The Guardian reported Wednesday that potential bidders for Northern Rock are pressing the government to waive a �2 billion ($4.1 billion) interest bill on the �20 billion loan.The bid deadline for Northern Rock suitors is Friday. A consortium led by Virgin Group; JC Flowers & Co. LLC; and Olivant Ltd., an investment company established last year by former UBS president Luqman Arnold, have expressed their interest. Cerberus Capital Management LP is also known to have been working on a bid.Shares in Northern Rock were down 1.8 pence at 150.20 pence by late morning Wednesday, giving a group a value �634.4 million ($1.3 billion), less than a quarter of the market capitalization before its problems emerged.The London Stock Exchange had Tuesday taken the unusual step of issuing a warning to short-sellers of the stock to ensure they comply with regulations and meet settlement dates. It said there was a “significant number of unsettled transactions” in Northern Rock, which has become a favorite with short-term investors looking to profit from declines in its value.Copyright�2007 TDD, LLC. All Rights Reserved.
