(Corrects in first paragraph and headline to substantialdemand, not oversubscribed)
* Offers accepted for 4 billion pounds of existing bonds
* Bonds may no longer count under new capital rules
* Bank issues 4.35 billion of new AT1 instruments
LONDON, March 20 (Reuters) - Lloyds Banking Group said an offer to bondholders who helped rescue it five years agoto swap their holdings into new debt, or cash out now in casethe bonds get called at par, had attracted substantial demand.
Lloyds issued the bonds, which were designed to boost thebank's capital if it ran into trouble, in 2009. But new UK andEuropean capital rules in force this year mean the bonds may nolonger count as capital if the bank hits problems, and Lloydswarned last month it could buy them back at face value.
Lloyds, 33 percent owned by the government, offeredinstitutional investors the chance to swap the bonds for the newinstruments in euro, dollars and sterling. Retail holders arebeing offered cash.
The bank said on Thursday offers had been accepted for 4billion pounds ($6.7 billion) worth of the existing bonds, knownas enhanced capital notes (ECNs), resulting in the issue of 4.35billion pounds worth of new Additional Tier 1 instruments.($1 = 0.6014 British Pounds) (Reporting by Matt Scuffham; Editing by David Holmes)