A Lloyds TSB US dollar denominated covered bond is included in a tender offer taking in £21.9bn (Eu27.1bn/US$35.5bn) of bonds launched by the UK group today (Tuesday) that otherwise includes only senior unsecured debt but ranges across the Australian, Canadian, Swiss, US, UK and euro-zone markets.

“This is a prudent exercise to manage the group’s wholesale markets debt levels and to utilise the group’s strong liquidity position and funding position which exceeds regulatory requirements,” it said. “This transaction reinforces the progress being made on the group’s strategy of decreasing reliance on the wholesale market and focusing on deposit growth in line with a shrinking balance sheet.”

Lloyds TSB said in related documentation that it will “better optimise its future interest expense”.

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

The BOS $3bn 5.25% February 2017 issue, guaranteed by HBOS plc, is being tendered at a repurchase spread of 100bp over the 0.625% August 2017 US Treasury. The 100bp repurchase spread represents a premium of some 200 cents or 45bp over secondary market levels, according to a syndicate banker.

The covered bond is included in approximately $11bn of US dollar denominated securities that are part of the offer and Lloyds TSB is offering to buy back any and all of these.

A European offer for £12.4bn equivalent and an Australian offer for A$4.2bn (£2.72bn) are capped at £2bn and A$1bn, respectively, and being run as modified Dutch auctions.

The tender offer is Lloyds TSB’s second this year and comes in the wake of liability management exercises for the UK’s Royal Bank of Scotland and Barclays Bank. UK financial institutions’ funding needs were expected to be lowered following the launch of a UK government Funding for Lending Scheme (FLS) that became operational at the beginning of August. Lloyds TSB group said today that it is fully funded for 2012.