Lloyds Prefs Tender Offer

[stevensfo]

As someone who knows very little about these things, I'd be grateful for any advice.

I bought a small number of LLPC many years ago and they provide a running yield of 7.4%.

At the price offered, I calculate that the profit I gain is equal to approx 4.5 years of dividends.

So I either hold them and continue to 'take the money and run', or sell them and put the funds somewhere else. I have some international Fixed interest ITs that I could top up.

Steve

PS They were bought when I was almost skint, make up less than 1% of my portfolio, but have some sentimental value.

[Laughton]

I certainly wouldn't claim to know any more than you but I'm always flumoxed when holders say:

I bought a small number of LLPC many years ago and they provide a running yield of 7.4%.

Why is the yield based on what you paid important when deciding what to do? Surely the important thing is what yield you would be giving up by selling/accepting the offer set against what yield you would be able to get by purchasing an alternative. That's assuming you want those funds to be invested. Obviously if you just want the money to spend then that's a different proposition.

Disc. I hold LLPC and LLPD, both in ISAS and SSAS - I haven't made a final decision but at the moment am minded to pass on the offer.

[digitaria]

I have received the relevant communication from ii, but also hold some in iWeb. Asked the latter about it via online chat earlier and was told to watch this space - they'll be in touch soon.

I am minded to take up the offer because I see the capital value falling in the medium term with anticipated rising interest rates. Having said that, the same may occur to anything I might replace them with, if I want a comparable yield.

[XFool]

I certainly wouldn't claim to know any more than you but I'm always flumoxed when holders say:

I bought a small number of LLPC many years ago and they provide a running yield of 7.4%.

Why is the yield based on what you paid important when deciding what to do?

Well, I've been thinking along the same lines - leaving aside any other issues.

Mine are LLPE and currently, at the price I purchased them, my XIRR is ~14% (that is before I have got round to factoring in the details of the tender). In 2024, assuming they are redeemed at par (not sure what will actually happen) this would fall to ~11%. So... why not now? Of course one cannot be sure of what the return will be if invested in some other share, but that usually is the case.

[BobGe]

I am minded to take up the offer because I see the capital value falling in the medium term with anticipated rising interest rates.

Remember that these existed as HBOS prefs before the GFC when interest rates were around 5% and, IIRC, traded around 160-170p.* Rising interest rates may cause a blip but history would suggest that could be short term as F.I. yield of circa 5.5% is still decent.


* (Has anyone kept any data from that time or has a better memory?)

[BobGe]

Mine are LLPE and currently, at the price I purchased them, my XIRR is ~14% (that is before I have got round to factoring in the details of the tender). In 2024, assuming they are redeemed at par (not sure what will actually happen) this would fall to ~11%. So... why not now? Of course one cannot be sure of what the return will be if invested in some other share, but that usually is the case.

I think it certain that any outstanding LLPE 6.475% will be called / redeemed at par 15/09/2024.
(For the avoidance of doubt, that does not apply to LLPC 9,1/4% or LLPD 9,3.4%.)

[JohnEdwards]

Still nothing from Hargreaves Lansdown - I've messaged them tonight.

[everhopeful]

I have received notification from Barclays this morning and have elected to sell.

[AleisterCrowley]

Absolutely nowt on HSDL re this , just checked

[kempiejon]

Absolutely nowt on HSDL re this , just checked

I've just chated with Halifax, the agent might have been handling multiple chats or might have been in touch with someone else waiting for them to reply but after quite a long wait they said

we will be releasing something shortly on the account

[AleisterCrowley]

'Shortly'
Thanks for the update, I was thinking of trying live chat but 'work' got in the way

[daveh]

The tender offer has now appeared on HSDL with a deadline of 5th December. I'll wait and see how many are tendered by the institutions before deciding.

[Victor55]

I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

[Laughton]

I'll wait and see how many are tendered by the institutions before deciding.

Hmm - I had thought to do that too but am I right in remembering that when NatWest did the same for NWBD they gave numbers of shares for institutions but not what the percentage was. Unless we know how many shares are held by institutions then we may not be much wiser.

[GoSeigen]

I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

Put yourself in the place of the bank shareholders. Would you think it's a good deal to be paying 9.25% interest on capital which has no practical use for regulatory purposes? In other words it is now literally a loan that the bank has taken out on which they pay 9.25% interest.

If Lloyds shareholders ever wish to reduce the bank's capital they are obligated to repay these preference shares before returning capital to themselves. I don't think they will find that a very painful prospect. Not saying it will happen, just that the incentives are there.


GS

[dealtn]

I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

Put yourself in the place of the bank shareholders. Would you think it's a good deal to be paying 9.25% interest on capital which has no practical use for regulatory purposes? In other words it is now literally a loan that the bank has taken out on which they pay 9.25% interest.

If Lloyds shareholders ever wish to reduce the bank's capital they are obligated to repay these preference shares before returning capital to themselves. I don't think they will find that a very painful prospect. Not saying it will happen, just that the incentives are there.


GS

The 9.25% coupon isn't the literal interest rate in the calculation for regulation, or Balance Sheet return and funding purposes. Items like this (on both sides of the Balance Sheet, be they assets or liabilities) will be marked-to-market.

[Holts]

I'll wait and see how many are tendered by the institutions before deciding.

Hmm - I had thought to do that too but am I right in remembering that when NatWest did the same for NWBD they gave numbers of shares for institutions but not what the percentage was. Unless we know how many shares are held by institutions then we may not be much wiser.

That was the problem with NatWest but Imsuppose we can look at the number in issue and relate that to the acceptances which will give us an indication of the Institutional view , something pitifully low would be helpful !

[BobGe]

I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

In simple terms: Banks are required to have a certain amount of capital that meets regulatory requirements. Preference shares used to count towards that. From 31/12/21 these preference shares no longer count. From the point of view of the bank, they no longer fulfil much useful purpose. So the PRA (Bank of England) asked the banks to come up with a plan of what to do with them and share it with the PRA. That plan might involve an offer for holders to tender their prefs for cash - (as Lloyds have done and as Nat West did previously) and/or keeping the prefs in existance (as non-regulatory capital).
https://www.bankofengland.co.uk/prudent ... nstruments

It has negligable effect on "Lloyds reporting results" as it has been known for some while, there was a transitional period in operation and the sums involved are not that great in the overall scheme of things. The terms of the prefs would not change. There was always the possibility that they could be cancelled, however traditionally banks didn't 'behave badly' and the last time it was mooted that a firm (Aviva) was considering doing so it caused a stink.

It's not exactly comparable (due to the terms) but when Nat West made a similar offer recently the take-up was quite low leaving a lot of NWBD prefs in existance. Other firms have not made offers to tender (yet) suggesting they may intend to maintain their prefs. There has been no general market turbulance in similar instruments as a result of the Lloyds announcement. On Monday 22nd Lloyds will release the results of the 'institutional' tender which should give some guidance as to how 'sophisticated investors' view the matter.

GoSeigen's comment is entirely valid. Any issuer would be delighted to get rid of any costly ineffective debt instrument whilst low interest rates prevail. The matter revolves around issuer integrity and maintaining orderly markets, hence the offer to tender. But this offer appears a bit mean as it carries no premium. On the other hand trust in banks has waned.


(If I'm misplaced in any of this I'm sure someone will correct me.)

[XFool]

Anyone actually heard any information about the tender from their broker yet? I have a feeling this might sail straight through without touching the sides...

Just to say I have now had a notification from my broker (Jarvis), along with details, of this corporate event. So it is being dealt with normally enough.

(Things are a bit busy, from a corporate event pov, in that ISA at present!)

[Rover110]

I am wondering what are the main risks of not accepting the offer? (I hold LLPC)

What exactly does this mean ? "From 1 January 2022, the Offeror will classify any remaining outstanding preference shares as ineligible for regulatory capital purposes"

Is this statement more beneficial to Lloyds reporting results and does it mean they can change or withdraw in the near future the Prefs?

My assumption is that the most-likely risk is that Lloyds somehow manage to "repay at par".
So that means LLPC, which is currently trading at 166.85 will be forcibly repaid at only 100.

I assume there would be a substantial outcry if they shafted all the institutional shareholders like that, so Lloyds are offering them a way out. Who knows, behind the scenes they might even have told major shareholders that is their plan.

I continue to hold.
Rover