Lloyds buys back £58.5 million enhanced capital notes in tender offer

By Susanna Moon

Chicago, April 17 - Lloyds Banking Group plc said it accepted for purchase about £58.5 million of enhanced capital notes in the retail tender offer.

Holders needed to deliver their tender instructions by 11 a.m. ET on April 16, with at least £200,000 par amount of each series of notes.

Settlement has been set for April 24.

The group also accepted the equivalent of £5 billion of notes as part of separate exchange offers, issuing about £5.35 billion of new AT1 securities, according to a company press release.

As previously announced, LBG Capital No. 1 and LBG Capital No. 2 began a tender offer for their outstanding enhanced capital notes, with the purchase amounts announced March 20.

The purchase price for the notes issued by LBG Capital No. 1 plc or LBG Capital No. 2 plc covered by the offers are listed in order of priority acceptance level:

• 111.75% of par for LBG No. 1's 11.04% notes due 2020 with £65,543,000 outstanding after exchange settlement;

• 106.25 for LBG No. 1's 7.5884% notes due 2020 with £79,166,000 outstanding after exchange;

• 105 for LBG No. 1's 7.975% notes due 2024 with £32,532,170 outstanding after exchange;

• 106.5 for LBG No. 1's 7.8673% notes due 2019 with £21,533,000 outstanding after exchange;

• 106.5 for LBG No. 1's 7.869% notes due 2020 with £27,465,000 outstanding after exchange;

• 111.75 for LBG No. 2's 11.25% notes due 2023 with £21.95 million outstanding after exchange;

• 108 for LBG No. 2's 9.334% notes due 2020 with £23,879,000 outstanding after exchange;

• 107.5 for LBG No. 2's 9.125% notes due 2020 with £47,637,000 outstanding after exchange;

• 120.75 for LBG No. 2's 14.5% notes due 2022 with £17.85 million outstanding after exchange;

• 105.5 for LBG No. 2's 7.625% notes due 2019 with £41,097,000 outstanding after exchange;

• 114 for LBG No. 2's 12.75% notes due 2020 with £13.58 million outstanding after exchange;

• 109.5 for LBG No. 2's 10.5% notes due 2023 with £9,182,000 outstanding after exchange;

• 107 for LBG No. 2's 9% notes due 2019 with £15,609,000 outstanding after exchange;

• 110.5 for LBG No. 2's 11.125% notes due 2020 with £4,889,000 outstanding after exchange;

• 128.5 for LBG No. 2's 16.125% notes due 2024 with £15.3 million outstanding after exchange;

• 104 for LBG No. 1's 8.125% notes due 2019 with £3.78 million outstanding after exchange;

• 107.5 for LBG No. 2's 9.875% notes due 2023 with £5,543,000 outstanding after exchange;

• 114 for LBG No. 2's 11.875% notes due 2024 with £19,539,000 outstanding after exchange;

• 107.5 for LBG No. 2's 9% notes due 2029 with £1,048,000 outstanding after exchange;

• 106.75 for LBG No. 2's 8.5% notes due 2032 with £4,672,000 outstanding after exchange; and

• 144 for LBG No. 2's 15% notes due 2019 with £704,152,000 outstanding after exchange.

Offer background

The company previously said that the offers would 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 group said it currently has £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 said.

Agents and dealers

The tender agent was 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 were 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 joint lead dealers managers were Barclays Bank plc (attn: liability management group, +44 20 3134 8515, email eu.lm@barclays.com, attn: liability management group) and UBS Ltd. (+44 20 7567 0525, email mark-t.watkins@ubs.com/mahmoud.abdelaal@ubs.com).

The joint dealers managers were BNP Paribas (+44 20 7595 8668 or email liability.management@bnpparibas.com), Citigroup Global Markets Ltd. (+44 20 7986 8969 or email liabilitymanagement.europe@citi.com), Deutsche Bank AG, London Branch (+44 20 7545 8011 or email liability.management@db.com), J.P. Morgan Securities plc (+44 207 134 3414/+44 207 134 2468 or email EMEA_LM@jpmorgan.com) and Morgan Stanley & Co. International plc (+44 20 7677 5040 or email liabilitymanagementeurope@morganstanley.com).

The banking and financial services company is based in London.

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