Blow for Northern Rock credit holders as it halts bond payouts

NATIONALISED lender Northern Rock shocked bond markets yesterday by ceasing payouts on several of its bonds in a bid to hoard cash ahead of a further &pound;3bn government bailout.<br /><br />The value of the failed sub-prime mortgage lender&rsquo;s credit plummeted as it announced it is to delay all payments where it is legally possible.<br /><br />The lender is keen to boost its capital levels, hoping this will win it approval from the European Commission for the bailout, which will see it split into a &ldquo;good bank&rdquo; and &ldquo;bad bank&rdquo; by the government.<br /><br />But, the value wiped off markets yesterday will anger the insurance, pension and hedge funds that own the bonds. Creditors could file a default claim, with an eye to forcing credit default swap insurers to cover the payments.