Investors holding 27% of a $3bn 2017 BOS covered bond took up an option to retire the securities, which were included in a Lloyds TSB liability management exercise targeting £21.9bn (Eu27.1bn/US$35.5bn) of bonds, according to results announced yesterday (Wednesday).

The Lloyds TSB tender offer is the first liability management exercise to target a US dollar covered bond, with euro issuance having been the sole focus of a series of covered bond buybacks that have taken place this year. The tender offer, Lloyds TSB’s second this year, otherwise included only senior unsecured debt taking in the Australian, Canadian, Swiss, US, UK and euro-zone markets.

Deutsche Bank, Lloyds Securities and UBS were joint dealer managers.

Investors holding $806.07m of the $3bn BOS 5.25% February 2017 issue participated in the buyback, for which a repurchase spread of 100bp over the 0.625% August 2017 US Treasury was set.

The take-up rate was one of the highest across the whole tender offer, alongside a 64.5% participation rate on a $1.5bn 4.2% senior March 2017 issue, but a liability management banker pointed out that these deals were the only US dollar notes not included in a buyback that Lloyds TSB carried out in July.

“This time we were putting out the offer to investors who were not willing to sell in the earlier exercise or who were constrained for other reasons”, he said, “and therefore the participation on these notes is much lower in this exercise, but if you look at it on an incremental basis a significant portion of the notes will now have been retired.”

The take-up offer with respect to the dollar notes included in the July tender offer was around 42%, he said, with the incremental participation rate ranging between 12% and 27% in the latest offer.

“Relative to the senior notes the covered bond participation rate was slightly lower,” he said. “A lot of the investors said they were happy to hold on to the bond because of a lack of replacement alternatives, especially with the yield at which the bond is trading.”

However, a 27% take-up rate is relatively high compared with the outcomes of euro covered bond buybacks carried out this year, most of which were launched by peripheral issuers and paid cash, although the acceptance rates on these have varied widely, from 3.5% on a tender offer by Austria’s Bawag to 42% for a National Bank of Greece offer.

“It’s not a bad hit rate as far as these things are concerned,” said a banker. “And it’s relatively unchartered territory for a dollar covered bond, especially for one that’s quite illiquid and not trading much.”