REG - Phoenix Grp Hldgs - Phoenix Group Holdings - 2014 Annual Results <Origin Href="QuoteRef">PHNX.L</Origin> - Part 12
18/03/2015 07:01
- Part 12: For the preceding part double click ID:nRSR7166Hk
Capital Commercial £m
Securities Property Trust
£m Limited
£m
At 1 January 408 316 724
Profit for the year 20 42 62
Dividends paid - (25) (25)
Coupon paid, net of tax relief (20) - (20)
Shares in subsidiaries subscribed for by non-controlling interests - 37 37
At 31 December 408 370 778
20.1 PERPETUAL RESET CAPITAL SECURITIES
On 1 January 2010, Pearl Group Holdings (No. 1) Limited ('PGH1') had in issue £500 million of Perpetual Reset Capital
Securities ('the Notes') which are admitted to the Official List of the UK Listing Authority and to trading on the LSE.
Following amendments made to the Notes in 2010, the principal amount outstanding is now £425 million.
The Notes are unsecured obligations of PGH1 and are subordinate to the claims of senior creditors. Payments in respect of
the Notes are conditional upon PGH1 being solvent at the time of payment and immediately following such payment.
Notes with a principal amount of £31 million as at 31 December 2014 (2013: £31 million) are held by other Group entities
and are therefore eliminated in the preparation of the consolidated financial statements.
The Notes have no fixed maturity date and coupon payments may be deferred at the option of PGH1; accordingly the Notes meet
the definition of equity for financial reporting purposes. Under the current regulatory rules of the PRA, the Notes also
meet the conditions to be included as Tier 1 capital in the calculation of the group capital resources for solvency
reporting purposes. Where the Notes are not held by other Group entities, they are disclosed as a non-controlling interest
in the consolidated financial statements.
The Notes may be redeemed at par at the option of PGH1 on the first reset date of 25 April 2016 or on any coupon payment
date thereafter. Redemption is subject to the agreement of the PRA. In certain circumstances PGH1 has the right to
substitute the Notes or to redeem the Notes before the first reset date.
Coupons are payable annually in arrears on 25 April, at the rate of 6.5864% per annum, until the first reset date.
Thereafter coupons are payable semi-annually at 2.73% per annum over the then prevailing offered rate for six month
sterling deposits.
If PGH1 opts to defer a coupon payment, then PGH1 has the option to either leave the coupon outstanding or satisfy the
deferred coupon payment through the alternative coupon satisfaction mechanism (the 'ACSM'), which involves the issue by
PGH1 of ordinary shares in order to fund payment of the deferred coupon. The ACSM was implemented during 2010 in order to
enable payment of a coupon which had been deferred during 2009.
For so long as a deferred coupon payment has not been satisfied, PGH1 may not declare, pay or distribute a dividend on any
of its securities in issue ranking junior to the Notes, including the ordinary shares of PGH1 or any parity securities or,
except in particular circumstances, redeem, purchase or otherwise acquire any of its securities in issue ranking junior to
the Notes, including its ordinary shares or any parity securities. These restrictions would also apply to the Company until
the deferred coupon payment is satisfied.
On 25 April 2014, the 2014 coupon was settled in full by PGH1, other than to two companies within the Group which waived
their right to receive that coupon.
In January 2015, the Group announced the successful exchange of 99% of the Notes (see note 46 for details).
20.2 UK COMMERCIAL PROPERTY TRUST LIMITED
UK Commercial Property Trust Limited ('UKCPT') is a property investment subsidiary which is domiciled in Guernsey and is
admitted to the Official List of the UK Listing Authority and to trading on the LSE.
The Group now holds 53% (2013: 58%) of the issued share capital of UKCPT. The Group's interest in UKCPT is held in the
with-profit funds of the Group's life companies. Therefore, the shareholder exposure to the results of UKCPT is limited to
the impact of those results on the shareholder share of distributed profits of the relevant fund. Further information on
the Group's with-profit funds is provided in note 39.
Summary financial information for the UKCPT is shown below:
2014 2013
£m £m
Non current assets 612 457
Current assets 14 21
Non-current liabilities (111) (100)
Current liabilities (10) (8)
505 370
Revenue 86 52
Profit before tax 75 42
Income tax - -
Profit for the year after tax 75 42
21. LIABILITIES UNDER INSURANCE CONTRACTS
This note contains a summary of the liabilities under insurance contracts and the related reinsurers' share included within
assets in the statement of consolidated financial position. The accounting policies adopted in the preparation of this note
are detailed in notes 1 (d), (e) and (s).
Gross Reinsurers' Gross Reinsurers'
liabilities share liabilities share
2014 2014 2013 2013
£m £m £m £m
Life assurance business:
Insurance contracts 33,582 4,484 31,960 2,850
Investment contracts with DPF 11,124 1 10,769 1
44,706 4,485 42,729 2,851
Less amounts classified as held for sale (note 4.2) (1,776) (1,713) - -
42,930 2,772 42,729 2,851
Amounts due for settlement after 12 months 39,636 2,705 39,126 2,775
Gross Reinsurers' Gross Reinsurers'
liabilities share liabilities share
2014 2014 2013 2013
£m £m £m £m
At 1 January 42,729 2,851 45,730 3,204
Amounts classified as held for sale - - 5,404 5,083
42,729 2,851 51,134 8,287
Premiums 981 1,792 1,333 (11)
Claims (3,724) (341) (4,830) (464)
Other changes in liabilities 4,751 200 86 (235)
Foreign exchange adjustments (31) (17) 17 7
Effect of portfolio transfers - - (5,011) (4,733)
44,706 4,485 42,729 2,851
Less amounts classified as held for sale (note 4.2) (1,776) (1,713) - -
At 31 December 42,930 2,772 42,729 2,851
22. UNALLOCATED SURPLUS
This note shows the movement in the excess of the assets over the policyholder liabilities of the with-profit business of
the Group's life operations. The accounting policy adopted in the preparation of this note is detailed in note 1(e).
2014 2013
£m £m
At 1 January 970 893
Transfer from income statement 11 77
At 31 December 981 970
23. Borrowings
This note shows the carrying values and fair values of each of the Group's borrowings and explains their main features and
movements during the year. The accounting policy adopted in the preparation of this note is detailed in note 1(h).
Carrying value Fair value
2014£m 2013£m 2014£m 2013£m
Limited recourse bonds 2022 7.59% (note a) 73 86 92 95
Property Reversions loan (note b) 184 186 184 186
£80 million facility agreement (note c) 80 80 80 80
£150 million term facility (note d) 150 150 150 150
Total policyholder borrowings 487 502 506 511
£200 million 7.25% unsecured subordinated loan (note e) 149 151 212 205
£300 million senior unsecured bond (note f) 298 - 324 -
£450 million revolving credit facility (note g) 441 - 450 -
£450 million amortising term loan (note g) 387 - 390 -
£2,260 million syndicated loan facility (note h) - 1,182 - 1,182
£100 million PIK notes and facility (note i) - 121 - 118
£75 million secured loan note (note j) - 76 - 49
£425 million loan facility (note j) - 327 - 315
Total shareholder borrowings 1,275 1,857 1,376 1,869
Total borrowings 1,762 2,359 1,882 2,380
Amount due for settlement after 12 months 1,609 2,183
Debenture loans
a. In 1998, National Provident Institution raised £260 million of capital through the securitisation of embedded value on
a block of existing unit-linked and unitised with-profit life and pension policies. Following the demutualisation of
National Provident Institution, these were transferred to National Provident Life Limited ('NPLL'). The bonds were split
between two classes, which rank pari passu. The £140 million 7.39% class A1 limited recourse bonds matured in 2012 with no
remaining outstanding principal. The £120 million 7.59% class A2 limited recourse bonds with an outstanding principal of
£94 million (2013: £105 million) have an average remaining life of 4 years maturing in 2022. NPLL has provided collateral
of £39 million (2013: £44 million) to provide security to the holders of the NPLL recourse bonds in issue. During 2014,
repayments totalling £11 million were made (2013: £11 million).
b. The Property Reversions loan from Santander UK plc ('Santander') was brought into the consolidated financial
statements at fair value. It relates to the sale of Extra-Income Plan policies that Santander finances to the value of the
associated property reversions. With effect from 1 January 2012, Phoenix Life Limited ('PLL') became party to a loan
agreement with Santander UK plc ('Santander'). As part of the arrangement Santander receive an amount calculated by
reference to the movement in the Halifax House Price Index and PLL is required to indemnify Santander against profits or
losses arising from mortality or surrender experience which differs from the basis used to calculate the reversion amount.
Repayment will be on a policy-by-policy basis and is expected to occur over the next 10 to 20 years. During 2014,
repayments totalling £24 million were made (2013: £22 million). Note 33 contains details of the assets that support this
loan.
c. In 2008, UKCPT entered into an £80 million revolving loan facility agreement. This loan accrues interest at LIBOR plus
a variable margin of 0.50% to 0.60% per annum. The lender holds a floating charge over certain assets of UKCPT and its
subsidiaries. The repayment date for this facility is 19 June 2015. This facility was fully utilised during 2014 and 2013.
d. On 19 May 2011, UKCPT entered into a £150 million investment term loan facility agreement. The £150 million investment
term loan facility agreement accrues interest at LIBOR plus a variable margin of 1.60% to 2.00% per annum. The lender holds
security over the assets of UK Commercial Property Estates Holdings Limited and UK Commercial Property Estates Limited,
both of which are subsidiaries of UKCPT. The repayment date for this facility is 19 May 2018. As at 31 December 2014, the
facility was fully drawn down (2013: Fully drawn down).
e. Scottish Mutual Assurance Limited issued £200 million 7.25% undated, unsecured subordinated loan notes on 23 July 2001
('PLL subordinated debt'). The earliest repayment date of the notes is 25 March 2021 and thereafter on each fifth
anniversary so long as the notes are outstanding. With effect from 1 January 2009, as a part of a Part VII transfer, these
loan notes were transferred into the shareholder fund of PLL. In the event of the winding-up of PLL, the right of payment
under the notes is subordinated to the rights of the higher-ranking creditors (principally policyholders). As a result of
the acquisition of the Phoenix Life businesses in 2009, these subordinated loan notes were acquired at their fair value and
as such, the outstanding principal of these subordinated loan notes differs from the carrying value in the consolidated
statement of financial position. The fair value adjustments, which were recognised on acquisition, will unwind over the
remaining life of these subordinated loan notes.
With effect from 23 December 2014, with the consent of the note holders, minor modifications were made to the terms of the
notes to enable them to qualify as lower tier 2 capital. Expenses incurred in effecting these modifications amounted to £10
million. Given the modifications were not substantial, the carrying amount of the liability has been adjusted accordingly
and will be amortised over the life of the notes.
f. On 7 July 2014 the Group's financing subsidiary, PGH Capital Limited, issued a £300 million 7 year senior unsecured
bond at an annual coupon rate of 5.75% ('the senior bond'). The senior bond is subject to guarantee by the Company. The net
proceeds from the bond issue of £296 million were used to prepay the Impala loan facility (see note h).
g. On 23 July 2014 PGH Capital Limited entered into a new £900 million 5 year unsecured bank facility which along with a
£206 million debt prepayment from internal resources was used to refinance the entirety of the Group's existing two bank
facilities and PIK notes, replacing the Impala and Pearl loan facilities with a single debt facility (see notes h and j).
The new facility comprises a £450 million revolving credit facility ('RCF') loan and a £450 million amortising term loan.
Both loans are repayable by July 2019 with an option to request an extension to the term of the RCF loan by two years to
July 2021. Further terms of the facilities agreement include:
- term facility repayment instalments of £30 million are due semi-annually on 30 June and 31 December each year.
Additional target repayments of £30 million may be paid semi-annually on 30 June and 31 December each year from 30 June
2015, non-payment of which would trigger restrictions on the Group regarding the declaration of dividends;
- the term loan bears interest at LIBOR plus an opening margin of 3.50% p.a. and the RCF loan at LIBOR plus an opening
margin of 3.25% p.a. After six months the margins will change in accordance with a margin ratchet which operates by
reference to the Group's gearing ratio. Margins will reduce by 0.50% on achievement of an investment grade rating; and
- amongst other fees, a utilisation fee of 0.25% p.a. is payable in respect of the RCF loan for so long as the amount
outstanding under the RCF exceeds 50% of the total commitments of the RCF loan.
Fees associated with this facility have been deferred and amortised over the life of the loan in the consolidated statement
of financial position.
h. On 14 May 2008, PGH (LC1) Limited and PGH (LC2) Limited jointly obtained a £2,260 million loan facility from a
syndicate of external banks (the 'Impala Facility'). This facility was split into Tranche loans A, B and C of £1,275
million, £492.5 million and £492.5 million respectively. On 22 February 2013, Tranche A, Tranche B and Tranche C of the
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