Fitch Rates Lloyd's GBP300m Dated Subordinated Notes 'A-'

(The following statement was released by the rating agency)
LONDON, February 02 (Fitch) Fitch Ratings has assigned the
Society of Lloyd’s
(Issuer Default Rating (IDR) A+/Stable) issue of subordinated
debt securities of
GBP300m a final rating of ‘A-‘.
The notes are rated two notches below the Society of Lloyd’s IDR
of ‘A+’ to
reflect their subordination (one notch) and ‘moderate’ risk of
non-performance
(one notch), in line with Fitch’s notching criteria.
The assignment of the final rating follows the completion of the
bond issue and
receipt of documents conforming to the information previously
received. The
final rating is the same as the expected rating assigned on 24
January 2017.
KEY RATING DRIVERS
The net proceeds of the issue of the notes are being used to
provide the issuer
with additional solvency capital to meet regulatory capital
requirements and for
general corporate purposes.
The securities are fixed- to floating-rate callable subordinated
notes paying a
fixed coupon of 4.875% annually in arrear until the first call
date of 7
February 2027. If not called, the coupon will reset to a
floating rate equal to
3 month LIBOR plus 4.479% payable quarterly in arrears,
representing a step-up
of 100bps. The scheduled maturity date is 7 February 2047.
The issue is structured to qualify as Solvency II Tier 2
regulatory capital. The
notes rank junior to the issuer’s senior creditors, pari passu
with any other
Tier 2 securities, and senior to any Tier 1 capital. The level
of subordination
is reflected in Fitch’s baseline recovery assumption of ‘below
average’ for the
issue, which results in the notes being notched down once from
the IDR.
The notes include a mandatory interest deferral feature, which
would be
triggered on a breach of the solvency capital requirement (or
minimum capital
requirement) for the Lloyd’s market as a whole or for the
central assets of the
issuer. This results in Fitch’s assessment of ‘moderate’ risk of
non-performance
and consequently a further notch down from the IDR.
According to Fitch’s methodology, this subordinated bond is
classified as 100%
capital within Fitch’s own capital assessment, due to the
application of the
‘regulatory override’. However, given that it is a dated
instrument, the notes
are treated as 100% debt in Fitch’s financial leverage
calculations.
The issue will lead to a small increase in the Lloyd’s financial
leverage, and a
reduction in fixed-charge coverage. However, both metrics are
expected remain
commensurate with the rating level.
RATING SENSITIVITIES
The notes’ rating is subject to the same sensitivities that may
affect the
Society of Lloyd’s Long-Term IDR (for more details, see ‘Fitch
Affirms Lloyd’s
of London’s IFS at ‘AA-‘; Outlook Stable’ dated 26 September
2016 at
www.fitchratings.com).
Contact:
Primary Analyst
Graham Coutts
Director
+44 20 3530 1654
Fitch Ratings Limited
30 North Colonnade
London E14 5GN
Secondary Analyst
Harish Gohil
Managing Director
+44 20 3530 1257
Committee Chairperson
David Prowse
Senior Director
+44 20 3530 1250
Media Relations: Athos Larkou, London, Tel: +44 203 530 1549,
Email:
athos.larkou@fitchratings.com.
Date of relevant rating committee: 23 September 2016
Additional information is available on www.fitchratings.com
Applicable Criteria
Insurance Rating Methodology (pub. 15 Sep 2016)
here
Additional Disclosures
Solicitation Status
here
Endorsement Policy
here
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