By Alistair Osborne for Telegraph, November 23, 2009 Analysts expect the cash call, the biggest ever in the UK, to be priced at 30p to 35p a share – based on Lloyds' guidance that it was likely to be at a 38pc to 42pc discount to the theoretical ex-rights price. Lloyds' shares closed up 3.32 at 91.47p last night (Monday). The rights issue is part of a total £22.5bn capital raising undertaken by the bank that was brought to its knees by the acquisition of HBOS. Raising the fresh capital will enable Lloyds to escape the pricey Government-backed insurance scheme for bad debts – known as the Asset Protection Scheme. Lloyds is 43pc owned by the taxpayer. The first part of Lloyds' capital raising was put in place yesterday with agreement from lenders on both sides of the Atlantic to exchange existing securities for new contingent convertibles ("CoCos"). Lloyds said its non-US debt holders had offered to take £7bn of the new hybrid enhanced capital notes (ECNs) and swap a further £1.5bn – most probably for new equity. Demand was high, with the bank receiving £12.5bn of offers for the £8.5bn that was exchanged. Lloyds also raised the sum it would exchange into hybrid debt with US investors to $986m (£594m) from an earlier target of $800m after receiving $2.7bn of offers. The "co-cos", which pay interest, are so-called because they convert into equity if the bank's core tier one capital ratio falls below 5pc. After the fund-raising, bigger than the £21bn initially planned, the ratio is expected to reach a pro-forma 8.9pc. The bank said it was "pleased" that the exchange offers had been "very positively received". Ian Gordon, an analyst at Exane BNP Paribas, said it was little surprise, however, that there had been such demand for the "co-cos". He pointed to European Union rules outlawing the payment of interest to the bondholders of banks that continued to benefit from state aid. "The lenders were facing at least two years without a coupon and they also get an average 175 basis point enhancement on the coupon they were receiving," he said, pointing out that for the "co-cos" to convert, "you would need a deep downturn". He added that it was disappointing Lloyds "felt it necessary to have more dilution than originally planned" by offering £1.5bn of new shares to some of the debt holders. Lloyds added that 800 jobs would go, out of an already announced 5,000, after losing an Equitable Life contract.
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