Tuesday 17 November 2015 3:48 pm

RBS announce a major £4.6bn senior debt buy-back scheme to reduce funding costs

RBS today announced a senior debt buy-back, including £1.9bn in sterling, $2.1bn in dollar and €1.3bn in euro senior notes, amounting to £4.6bn in total, or around 38 per cent of the company's total issued senior debt.

A debt buy-back allows the holders of the debt, or notes, to exchange it for cash, allowing the company to effectively pay-off the debt.

The bank's UK debt due date ranges from 2017 to 2028 and the €1.34bn euro notes outstanding from an initial debt issue of €2bn, are due in 2017. The combined $2bn in debt matures in 2020 and 2021.

RBS said it would set the purchase price on November 25, and the bank will buy-back at a small premium to compensate bondholders for cashing out early.

The long-term reduction in interest payments will outweigh the initial loss associated with the buyback, and help the bank reduce the cost of its funding, as RBS currently has a funding excess.

In a statement the bank it was looking to “manage its overall liability composition and mix for value," considering "future interest expense with reference to its balance sheet whilst maintaining a prudent approach to liquidity and costs.”

The tender offer will end at 4pm on 24 November.

Along with RBS' own team, Deutsche Bank and UBS are acting as joint deal managers.