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.<br /><br />Lloyds, which said the result marked &ldquo;an important milestone&rdquo; in its capital-raising exercise, raised &pound;8.5bn in its non-US bond exchange swap, of which the majority was in the form of the new &ldquo;enhanced capital notes&rdquo; (ECNs). It received offers from investors to exchange a total of &pound;12.51bn in existing securities.<br /><br />The contingent convertibles &ndash; or &ldquo;CoCos&rdquo; &ndash; will revert automatically into shares if the bank&rsquo;s core tier one capital ratio, a yardstick for its financial health, falls under five per cent.<br /><br />&ldquo;Appetite for the stock is high,&rdquo; said Evolution analyst Jaap Meijer. &ldquo;Both elements of the swap were favourable &ndash; the coupon is attractive and investors are confident it is extremely unlikely that Lloyds will breach that five per cent core capital ratio.&rdquo;<br /><br />Lloyds added that it had increased the maximum level of ECNs available to American investors from $800m (&pound;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.<br /><br />The positive response was well-received by the City ahead of the pricing of Lloyds&rsquo; record &pound;13.5bn rights issue today. The cash call is expected to be priced at around 33p.<br /><br /><strong>MATTHEW GREENBURGH<br />BANK OF AMERICA MERRILL LYNCH</strong><br /><br />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.<br /><br />The Bank of America Merrill Lynch team headed by Greenburgh &ndash; the rainmaker responsible for advising Sir Fred Goodwin on RBS&rsquo;s disastrous takeover of ABN Amro just before the economy went pear-shaped &ndash; has been credited in the City with thinking up Lloyds&rsquo; innovative take on the contingent convertible swap.<br /><br />Along with the bank&rsquo;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. <br /><br />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.<br /><br />The other bank acting as joint global co-ordinator, sponsor, lead dealer manager and structuring adviser on the deal is UBS.