Letter from the Chancellor to the Chairman
Last Monday I published a statement of principles
underpinning the Government's approach I proposals received by
Northern Rock with regard to its future. These principles set
out our commitment to protecting the interests of the taxpayer,
protecting depositors and maintaining wider financial stability.
They also explained how, as I have set out on number of occasions,
any outcome must meet EC state aid rules.
The Board of Northern Rock has announced to
the markets this morning that it has concluded it wishes to take
forward discussions on and accelerated basis with a consortium
comprising Virgin Group, WL Ross & Co, Toscafund Asset Management
LLP an First Eastern Investment Group. At this point I want to
make two points clear.
First, in reaching agreement with Northern Rock
on its bidder status, the Virgin Consortium has at the same time
confirmed to the Treasury and the Bank of England that it accepts
its equity and debt financing proposals
will, at the point of announcement of a definitive transaction,
be fully underwritten;
a included in the Virgin Consortium's
proposal, the private sector debt financing must be comparable
in scale to any public sector debt financing required following
the public sector debt financing
required must be on comparable terms, including as to ranking
in time of repayment and point of priority, as the private sector
debt financing envisaged by the proposal;
there must be binding incentives
for delivery of the Virgin Consortium's plan for achieving appropriate
credit ratings, bringing to an end any public sector guarantee
arrangements, repaying the public sector financing and terminating
any other public sector commitments; and
returns on equity investments made
by member of the Virgin Consortium and other holders of ordinary
shares must be restricted until the public sector loans have been
paid back with interest and all other public sector commitments
are at an end.
It should be noted that in addition to these
requirements, the regulatory requirements of the Financial Services
Authority (including as to the business plan and control of Northern
Rock) must be met and EC state aid requirements complied with.
These confirmations given by the Virgin Consortium
are in line with the principles I set out last week.
Second, until a transaction is finalised, the
Government continues to keep all options open in relation to the
future of Northern Rock.
I shall continue to keep the House informed
and will be placing copy of this letter in the Library of both
I am writing in similar terms to Edward Leigh
26 November 2007