I was interested by last month’s editor’s letter and in particular The Daily Telegraph’s assertion that bondholders did not deserve to earn the money they have in the British Energy situation. When British Energy defaulted, creditors had two options: the first was to liquidate the assets and accept the recovery value; the second was to support a restructuring through which they would receive most of the company. They chose the latter and by doing so become de facto owners of the company.
The shareholders had every opportunity to take a similar risk and either keep ownership of the company by injecting enough money to cover the debt repayments or buy the bonds at as little as 30% of face value. They decided it wasn’t worth it. So why, now that the bondholders have incurred the risk over the past 11 months, should they hand the rewards over to the previous owners?
Head of credit research
Gartmore Investment Management