Lloyds Sells $2 Billion Unsecured Bonds From Market Closed to Most Lenders

By Hannah Benjamin and Ben Martin – Jan 26, 2012

http://www.bloomberg.com/news/2012-01-26/lloyds-senior-bonds-may-yield-about-315-basis-points-over-swaps.html

Lloyds Banking Group Plc (LLOY), 41 percent-owned by British taxpayers and cutting 15,000 jobs, sold unsecured bonds into a market that has been closed to all but the safest lenders since July.

Lloyds raised 1.5 billion euros ($2 billion) from the five- year issue, its first senior, unsecured benchmark bond in the currency since March. Most banks have been priced out of this market amid the deepening euro-region crisis and concern European economies are on the brink of recession.

“Lloyds is pushing the envelope in one direction in the sense that we’re seeing weaker banks being given access to the market,” said Roger Francis, a credit analyst at Mizuho International Plc in London. “But while it’s progress, it’s not the big one that the market’s looking for. That will come when we see a bank from France or Spain sell an unsecured bond.”

The bank is bracing itself for a loss this year as it puts aside more money against bad loans and as the U.K. economy shrinks. Britain’s biggest mortgage lender was forced to seek a government bailout of more than 20 billion pounds ($31 billion) after its takeover of HBOS Plc in 2008.
Bond Yield

Lloyds priced its new bonds to yield 305 basis points more than the benchmark swap rate, the lower end of a range of spreads offered to investors, according to a banker with knowledge of the deal. The premium was “eye-watering,” Suki Mann, a London-based strategist at Societe Generale SA, wrote in a client note.

A Lloyds spokesman wasn’t available for comment when contacted by phone.

The bank’s last benchmark senior unsecured bond offering was a 1.5 billion-euro issue of 4.5 percent securities due 2014 in March, according to data compiled by Bloomberg. The notes, priced to yield 190 basis points more than swaps, now have a 244 basis-point premium.

BNP Paribas SA, Deutsche Bank AG and JPMorgan Chase & Co. managed today’s deal with Lloyds.

The bank has sold cheaper-to-issue secured notes in the past year, including 1.25 billion pounds of covered bonds due 2025 that it sold Jan. 19, data compiled by Bloomberg show. Covered bonds are backed by loans and guaranteed by the issuer.