Bank of Scotland aims to convert €2.75 billion of 4.875%, 3.875% bonds into soft bullet issues

By Susanna Moon

Chicago, April 27 – Bank of Scotland plc said it is looking to convert its €1.25 billion of 4.875% series 4 covered bonds due 2019 and €1.5 billion of 3.875% series 7 covered bonds due 2020 into soft bullet maturity structures.

The noteholder meetings have been set for May 21 in London to ask for approval.

Specifically, the proposed amendments include in the final terms of the extended due date and related provisions to allow for soft bullet maturity structure for each series of covered bonds, according to a company notice.

For soft bullet covered bonds, if the issuer fails to pay the final redemption amount at maturity, principal payments may be deferred one year later until an extended final maturity date, the release noted.

Originally, the bank’s €60 billion covered bond program, set up in 2003, permitted only the issue of hard bullet covered bonds, which require all amounts representing the final maturity amount to be repaid at maturity and failure to do so resulting in an event of default.

“Given the inefficiencies of hard bullet covered bonds, more recently established covered bond programs have included the option for a soft bullet maturity structure,” the company said.

Along these lines, the issuer said it has updated the program to include the soft bullet maturity structure and amended five series of covered bonds to soft bullet bonds from hard bullet issues.

Covered bondholders are being asked to consent to the modifications.

The consent solicitation is being made to people who are not U.S. persons under Regulation S.

For the 4.875% bonds, the hard bullet covered bonds would instead have a soft bullet maturity with an extended due date of June 4, 2020 and interest payable from the extension date.

For the 3.875% bonds, the extended due date would be Feb. 7, 2021.

The quorum required at each meeting is one or more persons representing at least two-thirds of the principal amount. To pass, the extraordinary resolution requires a majority in favor consisting of at least three-fourths of the votes cast.

The solicitation agent is Lloyds Bank plc (+44 20 7158 1721 or liability.management@lloydsbanking.com). The tabulation agent is Lucid Issuer Services Ltd. (+44 20 7704 0880 or bos@lucis-is.com). The principal paying agent is Citibank, NA, London Branch (+44 20 7508 3830/3835 or fax +44 20 7508 3875/3876).

Bank of Scotland is based in Edinburgh.

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