Lloyds ups hybrid bond exchange to £9bn
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Lloyds Banking Group is now trying to raise £22.5bn of fresh capital as it increases its new bond exchange to £9bn.
The bank was originally looking to raise £5.5bn through the exchange of new Enhanced Capital Notes but has upped its offer to satisfy demand for the new debt, which convert into equity if the bank breaches certain debt/capital ratios, according to the Financial Times.
Initially the bank was aiming toraise £21bn in lieu of entering into the Government’s Asset Protection Scheme, but it will now try to raise £22.5bn overall from the extended bond sale, alongside a £13.5bn rights issue.
The ECNs, also known as contingent convertibles or CoCos, act like a bond but if the bank’s capital ratio falls below 5 per cent they automatically convert to shares.
According to Reuters, UBS executive director Robert Ellison says: “It is my belief that there will be a viable new issue market for these instruments going forward. But the jury is still out.”
But the Association of British Insurers is against the new debt being considered fixed income assets and added to bond indices. It is concerned that any buyers of the debt may have to sell them if they turn to equity. The ABI says: “’Our members are strongly opposed, at this present time, to these instruments being included in bond indices.”
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