UPDATE: Moody's Assigns L&G Tier 2 Note Offering A3(hyb) Rating

(Alliance News) - Moody's Investor Service on Tuesday assigned an A3(hyb) rating to the ...

Alliance News 19 November, 2019 | 6:49PM
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(Alliance News) - Moody's Investor Service on Tuesday assigned an A3(hyb) rating to the subordinated Tier 2 fixed rate reset notes due 2049 to be issued by Legal & General Group PLC.

The FTSE 100-listed insurer and financial services firm said it intends to launch a sterling-denominated benchmark tier 2 subordinated debt issue under its GBP5 billion euro note programme, while reporting a largely positive trading performance from its divisions.

L&G said the debt issue will take advantage of favourable market conditions. It will confirm the amount of funds raised after the issuance has been settled.

Moody's said the rating was "standard notching practice for such instruments". This reflects the subordination of the notes; the optional and mandatory coupon skip mechanisms; and the cumulative nature of deferred coupons. Moody's noted the subordinated notes are in line with existing L&G subordinated debt.

The credit ratings agency continued: "The notes allow L&G to defer interest payments on any interest payment date if during the previous 6-month period no ordinary dividend was declared or paid; and no distribution on junior ranking instruments was declared or paid.

"The notes also contain a mandatory interest deferral trigger based upon breach of regulatory capital requirements of the issuer and/or the group, and/or any insurance undertaking within the group."

Moody's expects the notes to be used for general corporate purposes, and will qualify as tier 2, for solvency II purposes. At June 30, L&G's solvency II capital coverage ratio was 171%.

"Moody's expects L&G's adjusted financial leverage, which stood at an estimated 28% as at June 30, to remain consistently below 30% going forward. Whilst this latest issuance will increase L&G's financial debt, the group will also have generated equity since the half year, which will benefit the leverage ratio," the credit rater added.

Turning to its trading update for the year up to the end of October, L&G said that its Institutional Retirement business has transacted GBP8.5 billion of global pension risk transfers for the period to the end of October.

The group said it is in exclusive negotiations on a further PRT pipeline of GBP3 billion, which is expected to be completed before the end of 2019.

Meanwhile the Retail Retirement business has achieved individual annuity sales of GBP829 million for the period, up 34% year-on-year. However, lifetime mortgage advances were down 15% to GBP823 million.

Finally, the Investment Management business for the year to date achieved external outflows of GBP83 billion, while assets under management as at October 31 were GBP1.2 trillion, a GBP200 billion increase from the end of 2018.

For the end of 2019, Legal & General expects its solvency ratio, not including the planned benchmark debt issue, to be in the range of 171% to 176%, up from 171% in the first half.

"Our business continues to go from strength to strength. Our year-to-date operating performance across all five of our divisions is good reflecting the strong execution of our stated strategy. We remain disciplined in our deployment of capital, and our balance sheet and net cash flow are strong. We are taking advantage of favourable market conditions to raise debt, and remain confident in Legal & General's ability to grow sustainable profits over the long-term," said Chief Executive Nigel Wilson.

Shares in Legal & General - which is headquartered in London - closed down 0.5% at 279.20 pence on Tuesday.

By Dayo Laniyan; dayolaniyan@alliancenews.com and Paul McGowan; paulmcgowan@alliancenews.com

Copyright 2019 Alliance News Limited. All Rights Reserved.

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Securities Mentioned in Article

Security Name Price Change (%) Morningstar
Legal & General Group PLC 223.50 GBX 2.43 -

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