The UK Treasury today confirmed plans to back a private-sector rescue of Northern Rock through the sale of government-guaranteed bonds to pay off the crisis-hit lender's £24bn (€32.3bn) debts.
The funding would be dependent on a “robust and acceptable” business plan and taxpayer guarantees, the Treasury added.
Northern Rock will be taken into “temporary public ownership” if a private sector solution cannot be agreed, it said.
The bond scheme has been drawn up by the British Treasury's financial advisers, investment bank Goldman Sachs.
The Treasury had originally hoped that private sector bidders would be able to pay off up to £15bn (€20bn) of the lender’s Bank of England debts up front, but would-be rescuers have struggled to raise financing following the credit crunch.
The proposals would see the Newcastle-based lender selling a pool of its mortgages to a financing company, which would sell the Government-backed bonds in money markets.
Northern Rock will pay the arrangement fees and expenses for the new funding plans, although the British Treasury reserves the right to withdraw and examine other proposals if necessary.
Three private sector teams are vying to salvage Northern Rock – a consortium led by Richard Branson’s Virgin, investment group Olivant, and the Newcastle-based firm’s own management.
They will have until February 4 to submit their proposals, the Treasury added.