The Lemon Fool

Hi

I have been investing in and holding several PIBs/Perps/Bonds for over 10 years, but although I feel I know a bit about them I am puzzled by HALC - Halifax 8.75% Perpetuals.

There seem to be several bonds/PIBs that yield anywhere from 6% to 10% that have prices from 150p to 220p. NATN/NATW/LLPC as examples, but there are others.

The price for the HALC is "only" 112 and this seems cheap?

Does anyone know why this is? I have checked the prospectus on the Lloyds website. It all seems reasonably normal. The bank has an option to redeem at any time before 2023 based on a 7% gilt, and after 2023 at par, but I can find no 'news' of any intention to do so.

I guess if we are at 2022 now and you could get a year and a half of 8.75%, then the price would make sense at 112 if the bank would redeem at par in 2023, and prevailing interest rates are near 0 or 0.5%. (No risk premium)

The only other thing that stands out is that HALC has a minimum trade size of 50,000 units, meaning the min amount to invest would be 50,000 * 109p = GBP54,500. Would this be restricting the number of buyers, and so holding down the price.

I searched the board for HALC and got no results

Can anyone enlighten me, have any other information. Thanks in advance

These are subordinated bonds. As you noted there is a call option after 14 Sep 2023. The market is pricing in a high probability of a call, hence the price. Only 30 days' notice of redemption is required so it's futile trying to find some sort of announcement at this stage.

GS

They recently called their 12% perps so odds are that they will call these too when able.
That's why the price is what it is.

I would say it was highly likely they will call at par at the earliest opportunity. I would not expect them to announce anything in respect of the call before they have to though as that would undermine the whole point of having the option.