Investors in scramble for Lloyds bonds
LLOYDS Banking Group yesterday said investors had heavily oversubscribed to its ground-breaking contingent convertible bond exchange plan, sending the stock 3.8 per cent higher and paving the way for a strong take-up for its upcoming rights issue.
Lloyds, which said the result marked “an important milestone” in its capital-raising exercise, raised £8.5bn in its non-US bond exchange swap, of which the majority was in the form of the new “enhanced capital notes” (ECNs). It received offers from investors to exchange a total of £12.51bn in existing securities.
The contingent convertibles – or “CoCos” – will revert automatically into shares if the bank’s core tier one capital ratio, a yardstick for its financial health, falls under five per cent.
“Appetite for the stock is high,” said Evolution analyst Jaap Meijer. “Both elements of the swap were favourable – the coupon is attractive and investors are confident it is extremely unlikely that Lloyds will breach that five per cent core capital ratio.”
Lloyds added that it had increased the maximum level of ECNs available to American investors from $800m (£482.2m) to $985.6m, after it said the separate US bond exchange plan had already received over $2.7bn of offers ahead of its 7 December deadline.
The positive response was well-received by the City ahead of the pricing of Lloyds’ record £13.5bn rights issue today. The cash call is expected to be priced at around 33p.
MATTHEW GREENBURGH
BANK OF AMERICA MERRILL LYNCH
THE man widely blamed for advising on the deal that brought the Royal Bank of Scotland to its knees appears to be clawing back his reputation.
The Bank of America Merrill Lynch team headed by Greenburgh – the rainmaker responsible for advising Sir Fred Goodwin on RBS’s disastrous takeover of ABN Amro just before the economy went pear-shaped – has been credited in the City with thinking up Lloyds’ innovative take on the contingent convertible swap.
Along with the bank’s head of EMEA liability management John Cavanagh, head of EMEA debt capital markets Amir Hoveyda, co-head of EMEA financial institutions capital markets Sid Prasad, and head of EMEA debt capital markets syndicate Jeff Tannenbaum, Greenburgh has scored a bit of a coup helping Lloyds get back onto firm financial footing.
Although contingent convertibles have been around for a long time, the idea of using the core capital ratio as an equity conversion trigger is a novel one, and is expected to become a popular instrument at City banks.
The other bank acting as joint global co-ordinator, sponsor, lead dealer manager and structuring adviser on the deal is UBS.