35 BORROWINGS.


Borrowings are recognised initially at fair value, net of transaction costs. Borrowings classified as liabilities are subsequently stated at amortised cost. The difference between the net proceeds and the redemption value is recognised in the income statement over the borrowing period using the effective interest method.

Borrowings comprise unsecured subordinated debt such as tier 1 and tier 2 bond issues, short and long term unsecured senior debt such as long dated bond issues, commercial paper issuance and bank borrowings under both committed and uncommitted debt facilities including bank overdrafts. Borrowings secured on specific assets/cash flows such as Triple X securitisations and private equity fund linked partnership assets are included as non recourse borrowings. Mortgage loans raised by [SIPP] clients secured on those properties invested in their portfolio of linked SIPP investments which we manage on their behalf are treated as unit linked borrowings.

(i) Analysis by type

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Borrowings excluding unit linked borrowings
2011
£m

Unit linked
borrowings
2011
£m

Total
2011
£m

Borrowings excluding unit linked borrowings
2010
£m

Unit linked
borrowings
2010
£m

Total
2010
£m

1.

£64m (2010: £57m) of the Group’s subordinated and senior debt, £13m and £51m respectively, (2010: £12m and £45m) is currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total borrowings in the table above.

Subordinated borrowings

1,934

1,934

1,909

1,909

Senior borrowings

1,244

136

1,380

1,326

154

1,480

Client fund holdings of Group debt1

(64)

(64)

(57)

(57)

Total borrowings

3,114

136

3,250

3,178

154

3,332

Unit linked borrowings are excluded from the analysis below as the risk is retained by the policyholders.

(ii) Borrowings excluding unit linked borrowings – Analysis by nature

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Carrying
amount
2011
£m

Coupon
rate
2011
%

Fair value
2011
£m

Carrying
amount
2010
£m

Coupon
rate
2010
%

Fair value
2010
£m

Subordinated borrowings

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

721

6.39

487

690

6.39

527

5.875% Sterling undated subordinated notes (Tier 2)

421

5.88

329

423

5.88

356

4.0% Euro subordinated notes 2025 (Tier 2)

483

4.00

432

488

4.00

476

10% Sterling subordinated notes 2041 (Tier 2)

309

10.00

361

308

10.00

381

Client fund holdings of Group debt

(13)

(13)

(12)

(12)

Total subordinated borrowings

1,921

 

1,596

1,897

 

1,728

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

Sterling medium term notes 2031 – 2041

608

5.87

642

608

5.87

608

Euro Commercial paper

246

1.46

246

279

1.17

279

Bank loans/other

8

1.75

8

9

1.75

9

Non recourse

 

 

 

 

 

 

– US Dollar Triple X securitisation 2025

61

2.35

61

– US Dollar Triple X securitisation 2037

286

0.65

238

283

0.64

240

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

96

4.57

96

86

4.24

86

Client fund holdings of Group debt

(51)

(51)

(45)

(45)

Total senior borrowings

1,193

 

1,179

1,281

 

1,238

Total borrowings excluding unit linked borrowings

3,114

 

2,775

3,178

 

2,966

Total borrowings (excluding unit linked borrowings and non recourse financing)

2,732

 

2,441

2,748

 

2,579

£123m of interest expense was incurred during the period (2010: £121m) on borrowings excluding non recourse and unit linked borrowings.

Subordinated borrowings

6.385% Sterling perpetual capital securities

In 2007, Legal & General Group Plc issued £600m of 6.385% Sterling perpetual capital securities. Simultaneous with the issuance, the fixed coupon was swapped into six month LIBOR plus 0.94% pa. These securities are callable at par on 2 May 2017 and every three months thereafter. If not called, the coupon from 2 May 2017 will be reset to three month LIBOR plus 1.93% pa. For regulatory purposes these securities are treated as innovative tier 1 capital. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

5.875% Sterling undated subordinated notes

In 2004, Legal & General Group Plc issued £400m of 5.875% Sterling undated subordinated notes. These notes are callable at par on 1 April 2019 and every five years thereafter. If not called, the coupon from 1 April 2019 will be reset to the prevailing five year benchmark gilt yield plus 2.33% pa. These notes are treated as upper tier 2 capital for regulatory purposes. These securities have been classified as liabilities as the interest payments become mandatory in certain circumstances.

4.0% Euro subordinated notes 2025

In 2005, Legal & General Group Plc issued €600m of 4.0% Euro dated subordinated notes. The proceeds were swapped into sterling. The notes are callable at par on 8 June 2015 and each year thereafter. If not called, the coupon from 8 June 2015 will reset to a floating rate of interest based on prevailing three month Euribor plus 1.7% pa. These notes mature on 8 June 2025 and are treated as lower tier 2 capital for regulatory purposes.

10% Sterling subordinated notes 2041

On 16 July 2009, Legal & General Group Plc issued £300m of 10% dated subordinated notes. The notes are callable at par on 23 July 2021 and every five years thereafter. If not called, the coupon from 23 July 2021 will be reset to the prevailing five year benchmark gilt yield plus 9.325% pa. These notes mature on 23 July 2041 and are treated as lower tier 2 capital for regulatory purposes.

Non recourse financing

US Dollar Triple X securitisation 2025

In 2004, a subsidiary of LGA issued US$550m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written up to 2005. It is secured on the cash flows related to that tranche of business. As at 31 December 2011, all of the outstanding debt had been redeemed and cancelled.

US Dollar Triple X securitisation 2037

In 2006, a subsidiary of LGA issued US$450m of non recourse debt in the US capital markets to meet the Triple X reserve requirements of part of the US term insurance written after 2005 and 2006. It is secured on the cash flows related to that tranche of business.

LGV6/LGV7 Private Equity Fund Limited Partnerships

These borrowings are non recourse bank borrowings.

(iii) Borrowings excluding unit linked borrowings – Analysis by maturity

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Maturity profile of undiscounted cash flows

As at 31 December 2011

Carrying
amount
£m

Within
1 year
£m

1-5
years
£m

5-15
years
£m

15-25
years
£m

Over
25 years
£m

Total
£m

Subordinated borrowings

 

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

721

(600)

(600)

5.875% Sterling undated subordinated notes (Tier 2)

421

(400)

(400)

4.0% Euro subordinated notes 2025 (Tier 2)

483

(500)

(500)

10% Sterling subordinated notes 2041 (Tier 2)

309

(300)

(300)

Senior borrowings

 

 

 

 

 

 

 

Sterling medium term notes 2031 – 2041

608

(590)

(10)

(600)

Euro Commercial paper

246

(246)

(246)

Bank loans/other

8

(8)

(8)

Non recourse

 

 

 

 

 

 

 

– US Dollar Triple X securitisation 2025

– US Dollar Triple X securitisation 2037

286

(290)

(290)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

96

(6)

(49)

(41)

(96)

Client fund holdings of Group debt

(64)

Total borrowings excluding unit linked borrowings

3,114

(260)

(49)

(541)

(590)

(1,600)

(3,040)

Contractual undiscounted interest payments

 

(153)

(608)

(1,480)

(1,143)

(140)

(3,524)

Total contractual undiscounted cash flows

 

(413)

(657)

(2,021)

(1,733)

(1,740)

(6,564)

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Maturity profile of undiscounted cash flows

As at 31 December 2010

Carrying
amount
£m

Within
1 year
£m

1-5
years
£m

5-15
years
£m

15-25
years
£m

Over
25 years
£m

Total
£m

Subordinated borrowings

 

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

690

(600)

(600)

5.875% Sterling undated subordinated notes (Tier 2)

423

(400)

(400)

4.0% Euro subordinated notes 2025 (Tier 2)

488

(513)

(513)

10% Sterling subordinated notes 2041 (Tier 2)

308

(300)

(300)

Senior borrowings

 

 

 

 

 

 

 

Sterling medium term notes 2031 – 2041

608

(590)

(10)

(600)

Euro Commercial paper

279

(280)

(280)

Bank loans/other

9

(9)

(9)

Non recourse

 

 

 

 

 

 

 

– US Dollar Triple X securitisation 2025

61

(62)

(62)

– US Dollar Triple X securitisation 2037

283

(287)

(287)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

86

(5)

(38)

(43)

(86)

Client fund holdings of Group debt

(57)

Total borrowings excluding unit linked borrowings

3,178

(294)

(38)

(43)

(1,165)

(1,597)

(3,137)

Contractual undiscounted interest payments

 

(154)

(614)

(1,519)

(1,177)

(172)

(3,636)

Total contractual undiscounted cash flows

 

(448)

(652)

(1,562)

(2,342)

(1,769)

(6,773)

As at 31 December 2011, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, maturing in October 2016. This facility which was entered into in October 2011 replaces syndicated and bilateral facilities totalling £1.02bn which had been due to expire in December 2012. No drawings were made under any of these facilities during 2011.

The maturity profile above is calculated on the basis that a facility to refinance a maturing loan is not recognised unless the facility and loan are related. If refinancing under the Group’s credit facilities was recognised, then all amounts shown as repayable within one year would be reclassified as repayable between one and five years.

Undiscounted interest payments are estimated based on the year end applicable interest rate and spot exchange rates.

Short term assets available at the holding company level exceeded the amount of non-unit linked short term borrowings of £254m (2010: £288m). They comprise Euro Commercial paper and bank loans.

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