Lloyds Banking Group said holders of around £3.1 billion of subordinated bonds had agreed to swap into senior bonds in the first phase of a £7.5 billion exchange offer.

The take-up amounted to 67% of the £4.7 billion of the bank's bonds involved in the first stage.

A second phase of the exchange offer involving a total of £2.8 billion of bonds, on which Lloyds is offering 45% to 80% of face value, expires on 15 April.

Lloyds, which sweetened the terms of the exchange offer earlier this week, is offering new senior notes maturing in 2014, which are priced at spreads of 325 or 350 basis points over mid-swaps for existing Upper Tier 2 and some Tier 1 bonds.

A total of $2.6 billion of senior bonds will be issued with coupons ranging between 6.34% and 7.58%.

Lloyds bondholders who have participated so far have received between 50% and 70% of face value on a range of bonds denominated in euros and sterling.

Senior unsecured bonds rank higher than Upper Tier 2 bonds in a bank's capital structure.

Other banks, including Royal Bank of Scotland, UBS and Credit Agricole, have launched bond buyback or exchange offers to strengthen the quality of their balance sheets by taking advantage of discounted prices.