Lloyds reports exchange offer results for certain dollar capital notes

By Jennifer Chiou

New York, April 3 - Lloyds Banking Group plc announced the results in one of its several exchange offers, this one for several series of dollar-denominated capital notes.

The offer expired at 11:59 p.m. ET on April 2.

Overall, about $1.6 billion of enhanced capital notes was accepted in the offer in exchange for about $1.675 billion, or £1 billion, of new additional tier 1 securities.

According to a filing with the London Stock Exchange, this brings the total amount of additional tier 1 securities to roughly £5.35 billion.

Settlement is slated for April 7.

Specifically, LBG Capital No. 1 and LBG Capital No. 2 accepted tenders for the following:

• $916,242,000 of LBG Capital No. 1 plc's 7.875% notes due 2020 (XS0459093521 and XS0459093794);

• $78,625,000 of LBG Capital No. 2 plc's 7.875% notes due 2020 (XS0496068429);

• $601.82 million of LBG No. 1's 8% fixed-to-floating notes (XS0473106283 and XS0471767276); and

• None of LBG No. 1's 8.5% fixed-to-floating notes (XS0473103348 and XS0471770817).

The exchange offer began on March 6.

The separate tender offer for eligible retail holders of sterling-denominated enhanced capital notes remains open until April 16.

As reported, the offers will allow investors "to exit their holdings in the ECNs at a price consistent with current trading prices, by either exchanging them for AT1 securities or [...] by tendering them for cash," the company said.

The coupons of the new notes will range between 6.375% and 7.875%, and the new notes will be convertible into a fixed number of the group's ordinary shares at a sterling equivalent price of 64.3p should its reported fully loaded CET1 ratio fall below 7%, the company said.

The group initially said it had £8.4 billion nominal amount of enhanced capital notes outstanding in 33 separate series, which were issued by its subsidiaries LBG Capital No. 1 plc and LBG Capital No. 2 plc in 2009 as part of a significant capital-raising exercise in order to reinforce its going-concern capital ratios and to meet the Financial Services Authority's stress test requirements.

The enhanced capital notes have an average coupon of 9.3% and a core tier 1 conversion trigger of 5%. They contain a regulatory call right if they cease to be taken into account for the purposes of any stress test applied by the Prudential Regulation Authority (successor to the Financial Services Authority) for core capital.

The group said its management believes recent developments resulting in higher capital requirements for banks, including a changed definition of core capital, make it likely that the enhanced capital notes will not provide going-concern benefit under future stress tests.

For most series of securities, the relevant regulatory call price of par or the make-whole redemption price plus accrued interest is substantially lower than the purchase price under the relevant offer, Lloyds said.

The offers will help the group in aligning its capital base to the new capital framework established under the Capital Requirements Directive IV, the company previously said.

The tender agent is Lucid Issuer Services Ltd. (0800 376 0832 or 44 20 7704 0880, attn: Sunjeeve Patel/David Shilson/Victor Parzyjagla, email lbg@lucid-is.com).

The global coordinators and joint lead dealer managers are BofA Merrill Lynch (attn: John Cavanagh, 44 20 7995 3715, email john.m.cavanagh@baml.com), Goldman Sachs International (attn: Karl Bystedt Wikblom, 44 20 7996 0867, email karl.bystedtwikblom@baml.com, attn: liability management group, 44 20 7774 9862 or email liabilitymanagement.eu@gs.com) and Lloyds Bank plc (attn: Keval Shah, 44 20 7158 2021, email keval.shah@lloydsbanking.com, attn: Akis Psarris, 44 20 7158 3981 or email akis.psarris@lloydsbanking.com).

The banking and financial services company is based in London.

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