Bondholders approved the conversion of an HBOS covered bond from hard to soft bullet but voted against the conversion of another today (Wednesday), meaning three out of eight of the UK programme’s outstanding bonds will remain hard bullets as of the end of the exercise.

In a first round of investor meetings on 29 July consent was given for four out of seven bonds from the Bank of Scotland (HBOS) programme – comprising three euro issues totalling Eu4.25bn and a Dkr4.68bn issue – to be converted to soft bullets. However, bondholders voted against the conversion of a Eu1.5bn 2020 issue – the first time such an attempted switch has failed.

Adjourned meetings for two further bonds were arranged for today after 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.

The conversion of the Eu1.25bn 2017 issue was passed at the second attempt, with the bond to switch to soft bullet on 14 August. However, bondholders rejected the conversion of the Eu1.25bn 2019 issue, meaning the bond will remain a hard bullet. The quorum for today’s meetings had been set at one-third.

A 2017 dollar issue with a hard bullet maturity was meanwhile not included in the exercise, with potential complexities associated with the 144A format understood to have contributed to this.

“For HBOS, the outcome of the exercise is a little bit annoying,” said Emanuel Teuber, credit analyst at UniCredit. “Usually, an issuer tries to have only one kind of bond outstanding, soft or hard bullet.

“Now HBOS will have both hard and soft bullet benchmarks outstanding, but this in the end should have no immediate impact on investors or spreads.”

Deutsche Bank and Lloyds Bank were the solicitation agents.