Lucas bond row hits JP Morgan

A FURIOUS row has broken out in the UK corporate bond market with bondholders in the old Lucas car parts group accusing investment bank JP Morgan Chase of sanctioning a deal that stands to lose them more than £30m.

The Lucas bonds have collapsed in value because they have sunk to 'junk status as the automotive arm of Lucas's parent TRW is sold to a leveraged buyout bid from private equity firm Blackstone.

Some pension funds have become forced sellers of the bonds in a highly illiquid market as they are not allowed to hold bonds of subinvestment grade quality.

JP Morgan is lead managing a new bond issue to finance the buyout and today tried to tap burnt existing Lucas bondholders for fresh finance.

'We consider it appalling that a reputable investment bank like JP Morgan gets involved in a transaction like this,' said one major UK institutional bondholder, Karl Bergqwist of Gartmore.

The Association of British Insurers is understood to have approached JP Morgan and Blackstone with bondholders' concerns. The row has wider implications. Safeway's bonds could in theory be similarly downgraded if a leveraged bidder won control of the business.