Bank of Scotland seeks to restructure seven series into soft bullets

By Susanna Moon

Chicago, July 7 – Bank of Scotland plc said it is asking for bondholder approval to amend seven series of notes, mainly to change the bond structures to that of soft bullet maturities.

The meetings will be held in London on July 29 for holders of the following covered bonds:

• €1.5 billion series 17 covered bonds due 2016;

• €1.25 billion series 22 covered bonds due 2017;

• Kr 4.68 billion series 26 covered bonds due 2018;

• €1.25 billion series 4 covered bonds due 2019;

• €1.5 billion series 7 covered bonds due 2020;

• €1.5 billion series 16 covered bonds due 2021; and

• €1.25 billion series 23 covered bonds due 2022.

The initial meeting, for that of the 4.375% series 17 covered bonds due 2016, will begin at 5 a.m. ET, with subsequent meetings for each of the other series, in chronological order of scheduled maturity date, held at 15-minute intervals after that or after the completion of the preceding meeting, according to a bank notice.

The bank is seeking consents to amend the bond terms to create soft bullet bonds, instead of hard bullet covered bonds with

• An extended due for payment date falling on or nearest to the date that is 12 calendar months after the final maturity date for that series; and

• Interest payable from and including the extension date to but excluding the extended due for payment date, or if earlier, the date on which the final redemption amount is paid in full, monthly in arrears and determined by using the sum of one-month Euribor or one month Cibor plus a margin.

The consent fee will be 0.05%.

Background

The Bank of Scotland's €60 billion covered bond program was established in the United Kingdom in 2003. Bank of Scotland was registered as a regulated covered bond issuer in 2008, and all covered bonds issued under this program are regulated covered bonds.

The program previously only permitted issuing hard bullet covered bonds, which require all amounts to be repaid at maturity, and failure to do so results in an event of default.

The bank said that more recently established covered bond programs have included the option for a soft bullet maturity structure, which allows deferring payments due at maturity for one year until an extended maturity date.

As part of its balance sheet management, the issuer said it has updated its program to include the soft bullet maturity structure.

More details

In order to form a quorum, there must be one or more persons representing at least two-thirds of the outstanding amount of each series of covered bonds.

For the measure to pass, at least a majority consisting of at least three-fourths of the votes cast must be in favor.

The solicitation agents are Deutchse Bank AG, London Branch (+44 207 545 8011 or liability.management@db.com) and Lloyds Bank plc (+44 20 7158 2720 or bosconsentsolicitation@lloydsbanking.com).

The tabulation agent is Lucid Issuer Services Ltd. (+44 20 7704 0880 or lbg@lucid-is.com). The principal paying agent is Citibank, N.A., London Branch (+44 20 7508 3830/3835, telefax +44 20 7508 3875/3876).

Bank of Scotland is based in Edinburgh.

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