Bank of Scotland, part of Lloyds Banking Group, has launched a buyback offer targeting some Eu6.38bn of short dated euro and sterling denominated covered bonds issued under a dormant programme.

The move is a “housekeeping” exercise intended to take advantage of a strong liquidity position and to optimise Lloyds’ stock of outstanding debt and improve its funding position, according to an official at Lloyds Banking Group.

A covered bond analyst noted that BOS’s programme has been dormant for a long time and that Lloyds has been using its own programme for covered bond funding in the market.

“So by tendering the bonds the group is optimising its wholesale funding profile without reducing the outstanding volume of bonds and curve of the still actively used covered bond programme,” he said.

The tender offer targets three euro benchmarks of Eu2bn each, a 3.875% January 2014 issue, a 4.25% September 2014 and a 4.75% January 2015, as well the remaining £316m (Eu378m) of a £500m December 2014 issue.

BNP Paribas and Lloyds are dealer managers. The offer expires next Monday, 2 December.

A banker at one of the dealer managers said that on average, a premium of 10bp-15bp over secondary market levels is being offered.

The repurchase yield has been set at 0% for the January 2014s, although if the settlement date occurs on 6 December the purchase price will be Eu1,004.25 per Eu1,000. For the September 2014s and January 2015s the repurchase yield will be flat to Bunds. The sterling denominated covered bonds will be repurchased at 77 cents above par.

Lloyds launched a £21.9bn tender offer in September last year that included a BOS $3bn 5.25% February 2017 covered bond alongside senior unsecured issuance.