B&B braced for damaging credit rating report

Bradford & Bingley was last night preparing for more bad news, with the rating agency Moody's set to cut the mortgage bank's credit rating, just days before a crucial shareholder vote.

Moody's has been reviewing B&B's rating for a month and is likely to cut its credit rating by at least a point, according to a source. Significantly, the ratings cut gives buyout group TPG the right to walk away from making its planned investment. A cut would also make the cost of raising capital more expensive.

There was no indication that TPG was considering pulling out last night, with the buyout firm unwilling to comment until the report had been released.

The Moody's review comes in the run up to the bank's extraordinary general meeting on 7 July, convened to approve B&B's fund-raising plans.

Shareholders will vote on whether to approve the raising of £258m through a rights issue, with TPG investing a further £179m to take a 23 per cent stake.

The capital raising plan was challenged this month after Resolution, the fund set up by Clive Cowdery, waded in with a rival proposal. The group offered to invest £400m, which would effectively see it take control of B&B. The offer emerged after four of B&B's largest shareholders approached Resolution, unhappy with the terms of the original deal, offering to back a rival proposal.

Following a week of intense talks, the B&B board remained hostile to Resolution's plan and refused to open the books for due diligence, despite the fund's claim that shareholders with a combined 40 per cent holding backed the proposal.

Resolution pulled out last Friday, saying the board had been "extremely obstructive". This prompted a furious reaction from shareholders over the B&B board's handling of the negotiations.

Shareholders are preparing to confront the board at Monday's meeting over why it refused to countenance the rival offer.