By Aimee Donnellan

LONDON (IFR) - The Society of Lloyd's, better known as Lloyd's of London, is preparing to return to the bond market for the first time since the financial crisis began as it seeks to shore up capital ahead of two bond redemptions.

The specialist insurance market, rated A+/AA- by S&P and Fitch, is preparing to meet investors in London and Edinburgh on Monday and Tuesday of next week to discuss a dated sterling denominated subordinated bond. Barclays, Citigroup and RBS have been hired to lead manage the transaction.

The bond that is expected to carry a 10 year maturity and be callable after five will allow the issuer to create a much more stable form of capital and make it less reliant on the liquidity of its members.

Lloyd's has 94 syndicates that underwrite insurance and have to contribute to a central fund. That fund has a £3.2bn surplus but could be depleted if its members were no longer able to pay.

The market backdrop may prove challenging however. Recent subordinated bonds issued by rival insurers and reinsurers are still struggling to perform although sterling transactions are holding up a bit better.

A US$500m 30 non-call 10-year priced at the beginning of September for Swiss Re Corporate Solutions has dropped nearly three points to 97, having priced at par.

In contrast, UK insurer RSA's £400m 31 non-call 11-year bond issued earlier this month at 99.225, giving a spread of 280bp over Gilts, is now quoted above par at 100.8, according to Tradeweb.

"Lloyd's will go ahead if market conditions are stable," said a debt capital markets banker.

"Insurers aren't really in the eye of the market storm so I would imagine conditions will be fine."

Lloyd's has issued three subordinated bond transactions in its 325-year history. Its most recent - a £500m perpetual non-call 10-year Tier 1 bond - was sold in 2007.

Before that, it priced two Tier 2 bonds - a euro and a sterling - both of which are coming up for call before the end of next year. Back in 2004, the £300m 21-year non-call 11 sterling priced at 207bp over Gilts and the €300m 20-year non-call 10 euro priced at 172bp over mid-swaps.

Lloyd's bought back £280m of its subordinated bonds, once in April 2009 when it bought back £100m, and again in 2013 when it bought back £180m of subordinated notes.

Lloyd's had a subordinated debt pile of £714m as of May 2013.

"Lloyd's is an extremely interesting credit and one that investors were keen to understand when they first came to the market in 2004," said the debt capital markets banker.

Lloyd's subordinated bonds are rated A-/A- by S&P and Fitch. The society had a financial leverage ratio (debt plus hybrids to economic capital) of 4% as of last January, according to S&P.

Fitch expects Lloyd's level of capital to remain strong and supportive of its ratings.

(Reporting by Aimee Donnellan; Editing by Helene Durand and Sudip Roy)