UPDATE 1-Lloyds offers exchange for Clerical Medical debt

(Adds more details, background)

LONDON, June 30 (Reuters) - Lloyds Banking Group (LLOY.L) announced an offer on Tuesday of new Lloyds TSB Bank senior bonds in exchange for subordinated debt of life insurance unit Clerical Medical with a face value of 1.17 billion pounds ($1.9 billion).

Similar to the group's 4.2 billion pound debt exchange earlier this year, the offer is designed to strengthen the group's capital base, a spokeswoman said, adding that it would "eliminate surplus and inefficient capital held within Clerical Medical".

The prices offered, while at a steep discount to face value, are a few percentage points above recent prices for the bonds in the secondary market, said an analyst, who described the deal as a "clean-up" of the group's capital structure.

Standard & Poor's said on Tuesday that the offer for all three of Clerical Medical's subordinated Tier 2 bonds would not affect their ratings, because it did not constitute a distressed exchange.

Lloyds Banking Group said in April it would merge Clerical Medical, which it acquired as part of the takeover of HBOS, with its Scottish Widows investment business and phase out the Clerical brand.

Both operations have been on a list of insurance and asset management units that the part-nationalised group is considering for a sale, although no deals are expected soon [ID:nL4512424].

The exchange offer involves three Clerical Medical bonds:

* 200 million pounds ($329 million) of 7.375 percent perpetual notes at a price of 62 percent of face value. The next call date for these bonds is in November 2019.

* 750 million euros ($1.05 billion) of 4.25 percent perpetual notes at 48 percent, with the next call date in June 2015.

* 400 million euros ($560 million) of 6.54 percent bonds due in July 2023 at 73 percent, with the next call date in July 2013.

In the exchange, bondholders can get either new sterling senior notes, which will be consolidated with Lloyd's existing 6.375 percent notes due April 15, 2014, or new euro notes to be consolidated with its existing 6.250 percent April 15, 2014 bonds.

The spread on the new issues will be at mid-swaps plus 230 basis points, the Lloyds statement said.

The offer is set to expire at 1500 GMT on July 9. Lloyds also has an option for an early expiration deadline of 1500 GMT on July 7 if it receives acceptances from at least 10 million pounds of the sterling notes or 10 million euros of the euro notes. ($1=.6076 pounds) ($1=.7143 euros) (Reporting by Jane Baird; Editing by Greg Mahlich)