RBS kicks off bond restructuring scheme
LONDON (Reuters) - Royal Bank of Scotland (RBS) (RBS.L) on Tuesday launched its planned bond exchange and buy-back to restructure up to 15.8 billion pounds ($24 billion) of debt, hitting prices of a few lower ranked bonds.
The UK bank announced the restructuring on March 25, when it said it expected to buy back or exchange 6.2 billion pounds of Upper Tier 2 and Tier 1 debt in the exercise.
The restructuring is designed to strengthen the bank's core capital and help it on the road to recovery and will generate a 1.25 billion pound gain for the bank.
Details of the so-called priority ranking for the bonds RBS will accept in the buy-back were not revealed in March.
"They've now announced the spread and tenor of the new senior bonds to be issued in exchange for the UT2 bonds, and the priority waterfall for the T1 bonds, which are being tendered for cash," said one investor.
Loss-making Royal Bank, 84 percent government owned after it was rescued during the credit crisis, said last month it expected the buy-back and exchange would boost its core Tier 1 capital, a measure of financial strength, by around 30 basis points.
Royal Bank is offering investors an exchange price as a percentage of principal for the Upper Tier 2 bonds ranging from about 60 percent to 100 percent.
For the Tier 1 buy-back, traders said bonds with a high priority in a list of eligible bonds were unchanged after Royal Bank's announcement.
A 1.3 billion euro bond with a coupon of 7.0916 percent, for example, which is at the top of the priority list, was unchanged at about 65.5 percent of par, one trader said.
But bonds lower down the list were about 1 to 2 percentage points weaker, he said.
For example, a 1.25 billion euro 6.467 percent bond was about 60.25 percent of par before the announcement and around 58 percent bid after, the trader said.
Royal Bank has also provided details of which bonds would be affected by dividend and coupon payment deferrals.
The European Commission has tried to stop banks that have been bailed out by governments form paying coupons on certain bonds.
Royal Bank has agreed it will not pay coupons or dividends on existing hybrid capital instruments from April 30, 2010 for two years unless there is a legal obligation to do so.
The bank listed 12 non-cumulative preference share issues and 10 innovative Tier 1 securities that would be affected.
Royal Bank also said future decisions on whether or not to call (pay) capital instruments included in the buy-back/exchange would be taken on an economic basis and would be subject to regulatory approval.
The results of the restructuring will be announced on May 4.
(Reporting by Jane Merriman; editing by Elaine Hardcastle)
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