25 Borrowings.

25 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 core borrowings such as tier 1 and tier 2 bond issues, short and long term unsecured senior debt such as long dated bond issues. Operational borrowings also includes borrowings secured on 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
2013
£m

Unit linked borrowings
2013
£m

Total
2013
£m

Borrowings excluding unit linked borrowings
2012
£m

Unit linked borrowings
2012
£m

Total
2012
£m

Core borrowings

2,453

2,453

2,445

2,445

Operational borrowings

576

128

704

795

125

920

Total borrowings

3,029

128

3,157

3,240

125

3,365

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

(a) Core borrowings

(XLS:) Borrowings excluding unit linked borrowings – Analysis by nature – Core borrowing

 

Carrying amount
2013
£m

Coupon rate
2013
%

Fair
value
2013
£m

Carrying amount
2012
£m

Coupon rate
2012
%

Fair
value
2012
£m

1.

£60m (2012: £70m) of the Group’s subordinated and senior debt, £13m and £47m respectively, (2012: £17m and £53m) 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

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

680

6.39

650

700

6.39

636

5.875% Sterling undated subordinated notes (Tier 2)

418

5.88

438

419

5.88

425

4.0% Euro subordinated notes 2025 (Tier 2)

498

4.00

531

479

4.00

502

10% Sterling subordinated notes 2041 (Tier 2)

309

10.00

417

309

10.00

425

Client fund holdings of Group debt1

(13)

(13)

(17)

(17)

Total subordinated borrowings

1,892

 

2,023

1,890

 

1,971

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

Sterling medium term notes 2031-2041

608

5.88

721

608

5.88

767

Client fund holdings of Group debt1

(47)

(55)

(53)

(66)

Total senior borrowings

561

 

666

555

 

701

 

 

 

 

 

 

 

Total core borrowings

2,453

 

2,689

2,445

 

2,672

All of the Group’s core borrowings are measured using amortised cost. The presented fair values of the Group’s core borrowings reflect quoted prices in active markets and have been classified as level 1 in the fair value hierarchy.

(b) Operational borrowings

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

 

Carrying amount
2013
£m

Coupon rate
2013
%

Fair
value
2013
£m

Carrying amount
2012
£m

Coupon rate
2012
%

Fair
value
2012
£m

1.

The Group investments in operational borrowings have been eliminated from the Group consolidated balance sheet.

Short term operational borrowings

 

 

 

 

 

 

Euro Commercial paper

173

0.25

173

333

0.16

333

Bank loans/other

4

0.38

4

4

0.47

4

Total short term operational borrowings

177

 

177

337

 

337

 

 

 

 

 

 

 

Non recourse borrowings

 

 

 

 

 

 

US Dollar Triple X securitisation 2037

268

0.54

230

272

0.58

272

LGV 6/LGV 7 Private Equity Fund Limited Partnership

131

4.04

131

128

3.93

128

Consolidated Property Limited Partnerships

58

1.15

58

58

1.16

58

Total non recourse borrowings

457

 

419

458

 

458

Group holding of operational borrowings1

(58)

(49)

Total operational borrowings

576

 

547

795

 

795

£127m of interest expense was incurred during the period (2012: £127m) on borrowings excluding non recourse and unit linked borrowings. The total financing costs incurred for the year is £163m (2012: £165m).

The presented fair values of the Group’s operational borrowings reflect observable market information and have been classified as level 2 in the fair value hierarchy.

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.

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 tier 2 capital for regulatory purposes.

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 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 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.

LGV 6/LGV 7 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 2013

 

Carrying amount
£m

Maturity profile of undiscounted cash flows

As at 31 December 2013

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)

680

(600)

(600)

5.875% Sterling undated subordinated notes (Tier 2)

418

(400)

(400)

4.0% Euro subordinated notes 2025 (Tier 2)

498

(499)

(499)

10% Sterling subordinated notes 2041 (Tier 2)

309

(300)

(300)

Senior borrowings

 

 

 

 

 

 

 

Sterling medium term notes 2031-2041

608

(590)

(10)

(600)

Client fund holdings of Group debt

(60)

Total core borrowings

2,453

(499)

(590)

(1,310)

(2,399)

 

 

 

 

 

 

 

 

Short term operational borrowings

 

 

 

 

 

 

 

Euro Commercial paper

173

(173)

(173)

Bank loans/other

4

(4)

(4)

Non recourse

 

 

 

 

 

 

 

– US Dollar Triple X securitisation 2037

268

(272)

(272)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

131

(45)

(77)

(10)

(132)

– Consolidated Property Limited Partnerships

58

(58)

(58)

– Group holding of operational borrowings

(58)

Total operational borrowings

576

(222)

(135)

(10)

(272)

(639)

Total borrowings excluding unit linked borrowings

3,029

(222)

(135)

(509)

(862)

(1,310)

(3,038)

 

 

 

 

 

 

 

 

Contractual undiscounted interest payments

 

(154)

(603)

(1,417)

(1,069)

(77)

(3,320)

Total contractual undiscounted cash flows

 

(376)

(738)

(1,926)

(1,931)

(1,387)

(6,358)

(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)

Client fund holdings of Group debt

(70)

Total core borrowings

2,445

(488)

(590)

(1,310)

(2,388)

 

 

 

 

 

 

 

 

Short term operational borrowings

 

 

 

 

 

 

 

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)

Total operational borrowings

795

(430)

(58)

(35)

(276)

(799)

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)

As at 31 December 2013, the Group had in place a £1.00bn syndicated committed revolving credit facility provided by a number of its key relationship banks, £0.04bn matures in October 2017 and £0.96bn matures in October 2018. A test drawing was made under this facility during 2013. No amounts were outstanding at 31 December 2013.

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 operational borrowings of £177m (2012: £337m). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts.

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