LONDON, March 20 (IFR) - Lloyds Banking Group managed to
cajole bondholders into handing over GBP4bn-equivalent of
high-yielding capital notes in exchange for GBP4.4bn worth of
higher risk Additional Tier 1 bonds, completing the first part
of its capital strengthening exercise.
Lloyds, which is 33% owned by UK taxpayers, released the
euro and sterling results of the exchange offer of Enhanced
Capital Notes (ECNs) that were sold at the end of 2009 as part
of a broader recapitalisation of the bank.
Despite the fact that the UK lender was switching investors
into securities with a much higher risk profile - including
coupon deferrals and a higher trigger - it was able to upsize
the transaction by GBP350m and achieved an 81% take-up from
investors keen to avoid a potential regulatory call at face
value down the line.
Lloyds also issued the largest amount of Additional Tier 1
bonds in one day, accounting for around a quarter of the size of
the entire market.
Investors and analysts alike believe that the offer which
gave investors coupons in the range of 6.375% to 7.875% on the
AT1 bonds was fair but say that the big question now is how
Lloyds will treat holders of the outstanding ECNs.
"The interesting question for the remaining ECNs in all
currencies is how to read Lloyds' intentions in the future,"
said Roger Francis, a strategist at Mizuho.
"The bonds still aren't callable, but they might become so
in the future. Should investors fear a par call or has Lloyds
shown itself to be investor friendly?"
Lloyds surprised investors last month, when it said it could
buy back the ECNs at face value because new European rules mean
that they are now unlikely to count towards its capital buffers.
The bonds were trading at a premium to their issue price
because of the attractive interest they pay, and their value
fell sharply after the warning as investors worried they could
The offer gave these investors the option to exit bonds at
cash prices between 93 and 162.50, which one banker said was
consistent with pre-launch trading prices.
The UK lender targeted 28 series of Enhanced Capital Notes
Accounts that took advantage of the offer have now been
placed in perpetual bonds that are callable after five, six,
nine and 15 years. The issues will be GBP1.481bn, EUR750m,
GBP1.494 and GBP750m in size, respectively.
The high-profile retail exercise will pay bondholders cash
equal to the prices in the exchange offer, while the US exchange
has yet to be completed, although Lloyds has announced which
retail bonds it will be targeting. That exercise is expected to
expire on April 16.
On the US portion that is expected to expire on April 2,
Lloyds is targeting four series of US dollar-denominated ECNs,
offering holders up to USD1.675bn of new US dollar perpetual
non-call 10-year notes.
(Reporting by Aimee Donnellan; Editing by Helene Durand and