Lloyds Banking Group announces exchange offer for six series of notes

By Angela McDaniels

Tacoma, Wash., Nov. 4 - Lloyds Banking Group plc subsidiary LBG Capital No. 1 plc has begun an exchange offer for up to $800 million of six series of debt securities, according to a company news release.

The securities eligible for exchange are:

• HBOS plc's $1 billion outstanding principal amount of 5.375% undated fixed-to-floating-rate subordinated notes;

• HBOS Capital Funding No. 2 LP's $750 million outstanding principal amount of 6.071% non-voting non-cumulative perpetual preferred securities;

• Bank of Scotland plc's $237.2 million outstanding principal amount of undated floating-rate primary capital notes;

• Lloyds TSB Bank plc's $423.81 million outstanding principal amount of primary capital undated floating-rate notes, series 2;

• Lloyds TSB Bank's $659.85 million outstanding principal amount of primary capital undated floating-rate notes, series 1; and

• Lloyds TSB Bank's $526.15 million outstanding principal amount of primary capital undated floating-rate notes.

The exchange ratio is 1 to 1 for notes tendered by the early tender deadline and 9 to 10 for notes tendered after that time but before the offer expiration.

Holders will receive series 002 enhanced capital notes issued by LBG Capital No. 1 in exchange for 5.375% notes, series 003 enhanced capital notes issued by LBG Capital No. 1 in exchange for 6.071% notes and series 001 enhanced capital notes issued by LBG Capital No. 2 in exchange for the remaining notes.

The enhanced capital notes are new lower tier 2 capital qualifying bonds that will automatically convert into ordinary shares of Lloyds Banking Group if the group's published consolidated core tier 1 capital ratio falls to less than 5%.

The enhanced capital notes will be guaranteed by Lloyds Banking Group or Lloyds Banking Group and Lloyds TSB Bank.

Lloyds said the exchange offer is part of a package of proposals it is offering as an alternative to the U.K. Government Asset Protection Scheme. The London-based banking group is aiming to generate at least £7.5 billion of contingent core tier 1 capital and/or core tier 1 capital through the exchange offer and to raise £13.5 billion through a rights issue.

The company said eligible noteholders can obtain more information, including the timing of the exchange offer, from exchange agents D.F. King & Co., Inc. (212 269-5550 for banks and brokers, others call 800 628-8536) and Lucid Issuer Services Ltd. (44 20 7704 0880).

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