22 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

(XLS:) Borrowings – analysis by type

 

Borrowings excluding unit linked borrowings
2012
£m

Unit linked borrowings
2012
£m

Total
2012
£m

Borrowings excluding unit linked borrowings
2011
£m

Unit linked borrowings
2011
£m

Total
2011
£m

1.

£70m (2011: £64m) of the Group’s subordinated and senior debt, £17m and £53m respectively, (2011: £13m and £51m) 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

1,907

1,907

1,934

1,934

Senior borrowings

1,403

125

1,528

1,244

136

1,380

Client fund holdings of Group debt1

(70)

(70)

(64)

(64)

Total borrowings

3,240

125

3,365

3,114

136

3,250

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

(XLS:) Borrowings excluding unit linked borrowings – analysis by nature

 

Carrying amount
2012
£m

Coupon rate
2012
%

Fair value
2012
£m

Carrying amount
2011
£m

Coupon rate
2011
%

Fair value
2011
£m

Subordinated borrowings

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

700

6.39

636

721

6.39

487

5.875% Sterling undated subordinated notes (Tier 2)

419

5.88

425

421

5.88

329

4.0% Euro subordinated notes 2025 (Tier 2)

479

4.00

502

483

4.00

432

10% Sterling subordinated notes 2041 (Tier 2)

309

10.00

425

309

10.00

361

Client fund holdings of Group debt

(17)

(17)

(13)

(13)

Total subordinated borrowings

1,890

 

1,971

1,921

 

1,596

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

Sterling medium term notes 2031-2041

608

5.88

767

608

5.87

642

Euro Commercial paper

333

0.16

333

246

1.46

246

Bank loans/other

4

0.47

4

8

1.75

8

Non recourse

 

 

 

 

 

 

– US Dollar Triple X securitisation 2037

272

0.58

272

286

0.65

238

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

128

3.93

128

96

4.57

96

– Consolidated Property Limited Partnerships

58

1.16

58

Client fund holdings of Group debt

(53)

(53)

(51)

(51)

Total senior borrowings

1,350

 

1,509

1,193

 

1,179

Total borrowings excluding
unit linked borrowings

3,240

 

3,480

3,114

 

2,775

Total borrowings (excluding
unit linked borrowings and non recourse)

2,782

 

3,022

2,732

 

2,441

£127m of interest expense was incurred during the period (2011: £123m) 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 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.

Consolidated Property Limited Partnerships

These borrowings are non recourse bank borrowings.

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

(XLS:) Borrowings excluding unit linked borrowings – analysis by maturity 2012

 

Carrying amount £m

Maturity profile of undiscounted cash flows

As at 31 December 2012

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)

700

(600)

(600)

5.875% Sterling undated subordinated notes (Tier 2)

419

(400)

(400)

4.0% Euro subordinated notes 2025 (Tier 2)

479

(488)

(488)

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

333

(333)

(333)

Bank loans/other

4

(4)

(4)

Non recourse

 

 

 

 

 

 

 

– US Dollar Triple X securitisation 2037

272

(276)

(276)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

128

(35)

(58)

(35)

(128)

– Consolidated Property Limited Partnerships

58

(58)

(58)

Client fund holdings of Group debt

(70)

Total borrowings excluding unit linked borrowings

3,240

(430)

(58)

(523)

(866)

(1,310)

(3,187)

Contractual undiscounted interest payments

 

(153)

(605)

(1,451)

(1,106)

(107)

(3,422)

Total contractual undiscounted cash flows

 

(583)

(663)

(1,974)

(1,972)

(1,417)

(6,609)

(XLS:) Borrowings excluding unit linked borrowings – analysis by maturity 2011

 

Carrying amount
£m

Maturity profile of undiscounted cash flows

As at 31 December 2011

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 2037

286

(290)

(290)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

96

(6)

(49)

(41)

(96)

– Consolidated Property Limited Partnerships

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)

As at 31 December 2012, 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 2017. No drawings were made under this facility during 2012.

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 £337m (2011: £254m). They comprise Euro Commercial paper and bank loans.