Bondholders approved the conversion of four HBOS covered bonds from hard bullets to soft bullets yesterday (Wednesday), but the conversion of another failed – the first time bondholders have voted against such a move – while meetings regarding the conversion of two more have been adjourned.

Consent had been sought to convert seven bonds from the Bank of Scotland (HBOS) programme, which was the first structured covered bond programme when it was launched in July 2003.

These included six euro-denominated issues with maturities from 2016 to 2022 totalling Eu8.25bn (£5.83bn) and a Dkr4.68bn (Eu627m, £443m) 2018 issue.

Meetings were held yesterday for each of the issues, with a two-thirds quorum necessary and 75% of those present or 50% of the respective bond’s notional in favour required for the extraordinary resolutions to pass.

The four issues for which consent was gained were Eu1.5bn 2016s (XS0260981229); Dkr4.68bn 2018s (DK0030075023); Eu1.5bn 2021s (XS0260981658); and Eu1.25bn 2022s (XS0304459026).

These bonds will now feature 12 month extension periods with coupons referenced to the sum of one month Euribor or Cibor. Rating agencies had previously confirmed that the bonds’ triple-A ratings will not be affected by the conversion.

Bondholders who gave their consent for the conversion of the four series will received a five cents early participation fee on 5 August.

Meanwhile, the quorum required for the meeting in respect of a Eu1.25bn 2017 issue (XS0304458721) was not reached, and eligibility criteria for the meeting regarding a Eu1.25bn 2019 issue (XS0193640629) was not fulfilled because the quorum was not met when US bondholders were excluded.

Second meetings will be held for the two series on 12 August, with a one-third quorum required.

However, bondholders voted against the conversion of a Eu1.5bn 2020 issue (XS0212074388), which will remain a hard bullet. Market participants noted that this was the first time such a conversion had failed.

“In principle I don’t know of many investors that are categorically against soft bullets,” said an analyst.

“Maybe in the case of HBOS we were talking about a specific group of guys that happened to be in the same bond and all didn’t like the look of it. I have rather heard some that investors – while not opposing soft bullets per se and also buying them elsewhere – are starting to get tired of consent solicitations.”

However, independent covered bond consultant Richard Kemmish said the outcome might reflect a resistance among investors to soft bullet structures, as well as such consent solicitations, that had not previously been recognised.

“To be honest, I’m surprised this hasn’t happened before,” he said.

Kemmish noted that a 2012 survey by Fitch found that 21% of investors said they would not buy soft bullets, while 32% were willing to buy them and 47% were only willing to buy them at a higher spread.

“Presumably, if that survey was right, that means that when these conversions are approved around 21% of people were breaking their rules and another 47% were getting less yield than they wanted,” he said. “But no one has really objected.”

Kemmish also said solicitations were often skewed in favour of the issuer.

“Very few people actually vote, so you often don’t get a quorum,” he said.

“The way these things are set up is if at first you don’t get the quorum, then it becomes incredibly easy to get the quorum the second time around. The number of people who then actually have to vote for it is very limited. The one largest investor alone could be the quorum.”

It is understood that a $2,193.934m 2017 HBOS deal was not included in the conversion as it was a 144A issue, and this would complicate the process.

Deutsche Bank and Lloyds Bank were the solicitation agents.