Bank of Scotland solicits consents to update covered bond program

New York, Nov. 13 - Bank of Scotland plc announced a solicitation of consents for all its outstanding covered bonds.

The solicitation is intended to bring the program into line with new rating agency criteria.

Bank of Scotland noted in a press release that its covered bond program, created in 2003, was the first to be established in the United Kingdom.

The included in the solicitation are Bank of Scotland's €2 billion series 2 covered bonds due 2013, €1.25 billion series 4 covered bonds due 2019, €2 billion series 5 covered bonds due 2014, £500 million series 6 covered bonds due 2014, €1.5 billion series 7 covered bonds due 2020, €89.1 million series 10 covered bonds due 2013, $70.2 million series 11 covered bonds due 2013, €292.25 million series 12 covered bonds due 2012, €233.8 million series 13 covered bonds due 2013, £200 million series 14 covered bonds due 2013, €2 billion series 15 covered bonds due 2013, €1.5 billion series 16 covered bonds due 2021, €1.5 billion series 17 covered bonds due 2016, €2 billion series 18 covered bonds due 2014, $2,193,934,000 series 21 covered bonds due 2017, €1.25 billion series 22 covered bonds due 2017, €1.25 billion series 23 covered bonds due 2022, €2 billion series 25 covered bonds due 2015, DKK 4.68 billion series 26 covered bonds due 2018, €1,196,000,000 series 29 covered bonds due 2019, £1 billion series 33 covered bonds due 2014, €591.75 million series 35 covered bonds due 2014, €591.75 million series 36 covered bonds due 2016, €591.75 million series 37 covered bonds due 2016, £410 million series 38 covered bonds due 2014, €2,130,300,000 series 39 covered bonds due 2015, €591.75 million series 40 covered bonds due 2017, and €850 million series 41 covered bonds due 2016.

If the series 12 bonds are redeemed before the meeting then holders of those securities will not be entitled to attend or vote.

A meeting to vote on the changes will be held on Dec. 6 at 10 a.m. ET at the offices of Allen & Overy LLP.

Specifically, holders are being asked to amend the various agreements affecting the bonds to

• Update the original interest rate swap agreement and each covered bond swap agreement to address changes to the criteria of Standard & Poor's, Fitch and Moody's Investors Service, and to make certain other changes;

• Amend the LLP deed and the conditions and change the period when failure to fund the pre-maturity ledger will trigger an issuer event of default from six months prior to the relevant maturity to 11 months;

• Update the account bank ratings in line with the latest criteria of the rating agencies;

• Terminate the stand-by arrangements under the terms of the stand-by bank account agreement and stand-by guaranteed investment contract, and the removal of references to these arrangements in the transaction documents;

• Update the reserve fund required amount to reflect arrangements used in certain other U.K. regulated covered bond programs and latest rating agency criteria;

• Update the calculation of the set-off risk used in the asset coverage test, in line with the current rating agency criteria which takes account of the application of the Financial Services Compensation Scheme (FSCS) as a risk mitigant, as well as to introduce a rating trigger above which no amounts for set-off risk would need to be posted;

• Amend certain transaction documents to allow for the posting of swap collateral in the form of securities (in addition to cash), and to allow for the appointment of one or more custodians to hold such securities, and make amendments to the definition of the account bank and the bank account agreement to refer to any custodian and account agreement in respect of any swap collateral account;

• Amend the definition of swap provider default to remove references to a termination event;

• Amend the mortgage sale agreement to permit a single signatory to provide solvency certificates and to delete the largely duplicative requirement to undertake legal and auditor due diligence on the annual program update; and

• Amend the trust deed to allow the bond trustee and the security trustee to agree (without the need for further consent of the covered bondholders) future amendments to the transaction documents required as a result of, or in consequence of ongoing updates and changes to the methodologies and criteria adopted by rating agencies, to the RCB regulations, to permit for greater efficiency in any future novation of counterparty roles, and to introduce soft bullet covered bonds into the covered bond program.

Bank of Scotland said that the bonds may be downgraded by S&P if the changes are not passed. The modifications are also intended to give the bonds a higher D-Cap score from Fitch.

In order to pass the changes, Bank of Scotland needs a quorum of at least 50% of all the outstanding bonds represented and a majority in favor of at least three-quarters of those voting by show of hands or a written resolution from at least 50%.

Lloyds TSB Bank plc (+44 20 7158 2057 or BoSConsentSolicitation@lloydstsb.co.uk) is soliciting consents. The tabulation agent is Lucid Issuer Services Ltd. (+44 20 7704 0880 or lbg@lucid-is.com).

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