U.K. Supreme Court Will Review Lloyds CoCo Bonds Dispute

  • Lloyds won appellate court ruling to redeem bonds last year
  • U.K. Supreme Court comments on decision in e-mail statement

The U.K. Supreme Court will review a ruling on whether Lloyds Banking Group Plc can redeem as much as 3.3 billion pounds ($4.76 billion) of contingent capital bonds.

The court agreed to hear the dispute, according to an e-mailed statement Monday. A U.K. appeals court in December had ruled that the London-based lender had the right to redeem the notes over the objections of some investors.

Lloyds issued contingent convertible notes, which change into shares to absorb losses, in 2009 after U.K. regulators found a 29 billion-pound shortfall in its core capital. The terms allow for them to be redeemed at face value in the event of regulatory changes, which Lloyds says occurred when the U.K. Prudential Regulation Authority decided not to count them in stress tests.

Investors in the so-called Enhanced Capital Notes, represented by trustee Bank of New York Mellon Corp., sued to block the move and in June won the first round of the dispute at a trial court. Lloyds won an appeal in December. The bonds are costing Lloyds about 200 million pounds a year and some don’t expire until 2020.

The appeal will be heard in the “near future,” the court said Monday in the statement.

Lloyds said in a statement on Tuesday it extended its offer to redeem some of the bonds to Feb. 11 to give investors time to consider the Supreme Court’s decision to grant the appeal. The bank said it would “compensate fairly” bondholders who redeemed their securities early if it loses the case at the Supreme Court.

Britain’s largest mortgage lender had previously said it would redeem $1 billion of bonds, in pounds, dollars and euros, on Feb. 9. It will also buy back at par any notes from bondholders owning $3.7 billion of similar securities who do not accept a tender offer of 102 cents. The bank’s 125 million euros of 8.875 percent notes were quoted at about 120 cents before the Dec. 10 Court of Appeals decision allowing Lloyds to call the bonds.

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