NRAM (formerly Northern Rock Asset Management) is seeking to repurchase and redeem a Eu2bn (£1.353bn) 3.875% 2020 covered bond by asking bondholders to simultaneously tender their holdings and approve an extraordinary resolution allowing it to redeem any outstanding portion of the issue.

The UK institution – whose covered bonds were originally issued by the failed Northern Rock – announced the moves yesterday (Monday) and a timetable that runs to 8 May.

Holders who tender their bonds before an early tender deadline of 17 April will be paid a price equivalent to Bunds flat. This incorporates an “early tender premium” of 2 percentage points, meaning that those who do not tender early will receive 2 points less.

Bondholders are being asked to pass an extraordinary resolution whereby NRAM will repurchase those 3.875% 2020 bonds that remain outstanding after the tender is completed, at the lower price, and those tendering their bonds will be voting in favour of the resolution in tandem under the terms of the exercise.

“By tendering Covered Bonds in the Offer, the Covered Bondholders will automatically instruct the Principal Paying Agent to appoint one or more representatives of the Tender Agent as their proxy to vote in favour of the Extraordinary Resolution at the Meeting,” reads the documentation. “It will not be possible to validly tender Covered Bonds in the Offer without at the same time giving such instructions to the Principal Paying Agent.”

Approval for changes to related swap agreements to reflect the early redemption is also being sought as part of the exercise.

A quorum of two-thirds is required for a 7 May meeting on the resolution and one-third should that be adjourned, with a 75% majority required in favour at either meeting for the resolution to be passed.

According to Maureen Schuller, head of covered bond strategy at ING, the purchase price of Bunds flat (incorporating the early tender premium) equates to a Z-spread equivalent of around minus 40bp and the 2020 bonds were quoted 4bp tighter this (Tuesday) morning, at +4bp/-1bp.

According to a 31 January NRAM investor report – the latest available on its website – the issuer will have only two covered bonds outstanding after the tender and proposal is completed, both maturing in 2017: a Eu1.75bn March 2017 and a $1.5bn (£754m, Eu1.115bn) June 2017. A Eu1.5bn NRAM issue will meanwhile mature on 20 April.

“The rationale for undertaking the Offer and the Proposal is to reduce the duration of the Company’s liabilities through the purchase by the Company of some of its longer dated securities and reduce the future asset requirement of the Programme,” reads the NRAM announcement.

Citi and HSBC are NRAM’s dealer managers.