Merrill gets tenders for $39.522 million Royal & Sun Alliance 8.95% bonds

By Jennifer Chiou

New York, May 19 - Merrill Lynch International announced it received tenders from holders of $39.522 million of notes in its tender on behalf of Royal & Sun Alliance Insurance Group plc for Royal & Sun's $500 million of 8.95% subordinated guaranteed bonds due 2029.

The tender offer expired at midnight ET on May 18.

At the early participation deadline of 5 p.m. ET on May 4, holders of $38.814 million of bonds had tendered their securities.

For each $1,000 principal amount of bonds, Merrill Lynch will pay $1,282.31, which includes the $40.00 early participation payment.

The consideration for each $1,000 principal amount of bonds tendered is 125 basis points over the bid-side yield of the 5.375% Treasury note due Feb. 15, 2031.

Pricing was determined at 10 a.m. ET on May 4. The reference yield was 5.322% and the tender offer yield was 6.572%.

All holders who tender will receive accrued interest up to but excluding the payment date.

On May 9, the company accepted $425.694 million or 85.1% of its 8.95% bonds in an exchange offer and, as a result, issued £297.279 million of new notes. The exchange ended at 10 a.m. ET on May 5.

On May 2, the company said it fixed the spread for the new sterling perpetual guaranteed bonds to be issued in its exchange for any or all of the dollar-denominated subordinated bonds at 187 basis points over the bid-side yield of the 4¾% U.K. Treasury due Sept. 7, 2015.

As announced on April 20, Royal & Sun Alliance is seeking to replace its 8.95% bonds with sterling-denominated perpetual guaranteed capital securities in order to improve its balance sheet and strengthen the regulatory capital position of the group.

The existing 8.95% bonds do not qualify as regulatory capital, the company explained at the time it launched the deal.

The offer was in two parts - a direct exchange and a tender offer being conducted by Merrill Lynch. Merrill will then exchange any bonds tendered.

Under the exchange, Royal & Sun Alliance is offering sterling perpetual guaranteed bonds for the Yankee bonds.

Royal & Sun Alliance added that it may also sell additional sterling perpetual guaranteed bonds for cash and use proceeds to support its general insurance activities - and it said on May 9 that it had agreed to sell £77.721 million of additional notes for cash, bringing the total size of the new issue to £375 million.

Merrill Lynch International is joint dealer manager and structuring advisor (+44 20 7995 3715) and BNP Paribas Edward Stevenson (+44 20 7595 8385), Lehman Brothers International (Europe) (+44 20 7103 2014) and HSBC Bank plc (+44 20 7991 5866) are joint dealer managers.

The exchange offer is only being made outside the United States.

Bondholders who tender will only receive the cash consideration and will not be able to participate in the exchange offer, according to the release.

D.F. King & Co. Inc. (800 769-4414 or 212 269-5550, call collect) is the information agent for the tender offer and Merrill Lynch, Pierce, Fenner & Smith Inc. (888 654-8637 or 212 449-4914, call collect) is the dealer manager.

Royal & Sun Alliance is a property and casualty insurance group based in London.

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