Lloyd’s announced that it plans to make its debut in the international debt markets, with an issue aimed at raising approximately £500 million ($902 million) of long-term subordinated debt.
The announcement indicated that the size and the terms of the transaction would be finalized “following an investor road show to sterling and euro investors, and subject to market conditions. An application will be made to list the debt on the London Stock Exchange.”
Lloyd’s Chief Executive Nick Prettejohn stated: “Lloyd’s today is financially strong. We are now aiming to strengthen that position further by establishing a long-term, robust and flexible capital structure which is economically efficient for those firms which choose to operate at Lloyd’s.
“With this aim, we have been working for over a year on an innovative strategy to finance the Society’s central assets through a mix of traditional direct contributions by members, a new syndicate loan arrangement for 2005 which we announced last month, and this prospective issue of subordinated debt. Our strategy has widespread support from the market, our membership and the rating agencies. We believe there is currently a good appetite for this type of issue in the capital markets.”
A.M. Best Co. announced that it has assigned a “bbb+” debt rating to the subordinated notes and an issuer credit rating (ICR) of “a-” to the Society of Lloyd’s. “The proposed issue can be redeemed by the Society after ten years (or any coupon rest date thereafter), although the proposed maturity date will be substantially later,” best noted. It also said the “outlook for both ratings is stable.”
The rating agency added: “The debt issue reflects its subordination to payments from the central fund in respect of the insurance liabilities of insolvent members and other unsecured senior obligations of the Society. A.M. Best believes that the notes introduce a manageable level of gearing into the Society’s central mutual capital whilst enhancing its financial flexibility. The Society’s sources of income with which to service its debt obligations include an element of adaptability derived from its power to require payment of Central Fund contributions, subscriptions and levies from its underwriting members.”
Best also said it “anticipates that the Subordinated Notes will be admissible as Tier 2 capital within the UK Financial Services Authority’s new capital adequacy regime and will therefore contribute to increasing the solvency capital of Lloyd’s of London,” which Best currently assigns an “A” (Excellent) financial strength rating and an “a” ICR.
The other rating agencies are expected to assign similar ratings to the issue.
Topics Excess Surplus Lloyd's Funding
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