Fitch Ratings has assigned Friends Life Group proposed issue of perpetual hybrid securities an expected ‘BBB+(EXP)’ rating. At the same time Fitch has maintained the Rating Watch Negative (RWN) on FLG and all existing group ratings. The expected rating is on RWN, in line with the RWN on FLG.
The final rating is contingent on the receipt of final documents conforming to information already received.
As FLG will use most of the proceeds to repay existing debt to its parent, Resolution Holdings (Guernsey) Limited, the issuance is not expected to have a material impact on FLG’s financial leverage ratio.
The proposed new issue is classified as Upper Tier 2 notes for regulatory purposes, with the option to redeem on every coupon date after year six. FLG has the option to defer coupons at any time, subject to a dividend stopper.
The notes will be subordinated to senior creditors, and guaranteed on a subordinated basis by Friends Life Limited (Issuer Default Rating ‘A’/RWN), which is the group’s main operating subsidiary. The securities will pay a fixed rate of interest. The terms of the issue include mandatory interest deferral, with triggers based on regulatory solvency and legal insolvency.
The terms and conditions of the notes have been designed having had regard to the latest proposals under the proposed Solvency II regime.
Fitch will resolve the RWN following further analysis of FLG to clarify expectations for profitability. The ratings may be downgraded if FLG is unable to demonstrate that underlying profitability improvements are on track towards an annual operating return on assets in excess of 0.40% as calculated by Fitch, and that the overall payback period for new business is reducing materially.
The rating actions are as follows:
Friends Life Group plc: Long-Term IDR ‘A-‘; maintained on RWN
Friends Life FPG Limited: Long-Term IDR ‘A-‘; maintained on RWN
Friends Life Limited: Long-Term IDR ‘A’, IFS ‘A+’; maintained on RWN
Friends Life Company Limited: IFS ‘A+’; maintained on RWN
Friends Life Assurance Society Limited: IFS ‘A+’; maintained on RWN
