26 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 subordinated bond issues and long term unsecured senior debt. Operational borrowings include 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

 

Borrowings excluding unit linked borrowings
2014
£m

Unit linked borrowings
2014
£m

Total
2014
£m

Borrowings excluding unit linked borrowings
20131
£m

Unit linked borrowings
2013
£m

Total
2013
£m

1.

Operational borrowings have been restated to reflect the adoption by the group of IFRS 10, ‘Consolidated Financial Statements’. Further details are contained in Note 1.

Core borrowings

2,977

2,977

2,453

2,453

Operational borrowings

590

125

715

647

128

775

Total borrowings

3,567

125

3,692

3,100

128

3,228

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

(ii) Analysis by nature

(a) Core borrowings

 

Carrying amount
2014
£m

Coupon rate
2014
%

Fair value
2014
£m

Carrying amount
2013
£m

Coupon rate
2013
%

Fair value
2013
£m

1.

£76m (2013: £60m) of the group’s subordinated and senior borrowings are currently held by Legal & General customers through unit linked products. These borrowings are shown as a deduction from total core borrowings in the table above.

Subordinated borrowings

 

 

 

 

 

 

6.385% Sterling perpetual capital securities (Tier 1)

658

6.39

642

680

6.39

650

5.875% Sterling undated subordinated notes (Tier 2)

416

5.88

431

418

5.88

438

4.0% Euro subordinated notes 2025 (Tier 2)

472

4.00

482

498

4.00

531

10% Sterling subordinated notes 2041 (Tier 2)

310

10.00

424

309

10.00

417

5.5% Sterling subordinated notes 2064 (Tier 2)

588

5.50

666

Client fund holdings of group debt1

(28)

(31)

(13)

(13)

Total subordinated borrowings

2,416

 

2,614

1,892

 

2,023

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

Sterling medium term notes 2031-2041

609

5.88

800

608

5.88

721

Client fund holdings of group debt1

(48)

(62)

(47)

(55)

Total senior borrowings

561

 

738

561

 

666

 

 

 

 

 

 

 

Total core borrowings

2,977

 

3,352

2,453

 

2,689

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 they have been classified as level 1 in the fair value hierarchy.

(b) Operational borrowings

 

Carrying amount
2014
£m

Coupon rate
2014
%

Fair value
2014
£m

Carrying amount
20131
£m

Coupon rate
20131
%

Fair value
20131
£m

1.

Operational borrowings have been restated to reflect the adoption by the group of IFRS 10, ‘Consolidated Financial Statements’. Further details are contained in Note 1.

2.

The group investments in operational borrowings have been eliminated from the Group Consolidated Balance Sheet.

Short term operational borrowings

 

 

 

 

 

 

Euro Commercial paper

73

0.58

73

173

0.25

173

Bank loans/other

8

0.45

8

4

0.38

4

Total short term operational borrowings

81

 

81

177

 

177

 

 

 

 

 

 

 

Non recourse borrowings

 

 

 

 

 

 

US Dollar Triple X securitisation 2037

286

0.54

240

268

0.54

230

LGV 6/LGV 7 Private Equity Fund Limited Partnership

136

3.89

136

131

4.04

131

Consolidated Property Limited Partnerships

148

1.89

148

129

1.77

129

Total non recourse borrowings

570

 

524

528

 

490

Group holding of operational borrowings2

(61)

(52)

(58)

(49)

Total operational borrowings

590

 

553

647

 

618

£142m of interest expense was incurred during the year (2013: £127m) on borrowings excluding non recourse and unit linked borrowings. The total financing costs incurred for the year is £183m (2013: £166m).

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. 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
In 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.

5.5% Sterling subordinated notes 2064
On 19 June 2014, Legal & General Group Plc issued £600m of 5.5% dated subordinated notes. The notes are callable at par on 27 June 2044 and every five years thereafter. If not called, the coupon from 27 June 2044 will be reset to the prevailing five year benchmark gilt yield plus 3.17% pa. These notes mature on 27 June 2064 and are treated as tier 2 capital for regulatory purposes.

Non recourse borrowings

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) Analysis by maturity

 

 

Maturity profile of undiscounted cash flows

As at 31 December 2014

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)

658

(6)

(600)

(606)

5.875% Sterling undated subordinated notes (Tier 2)

416

(6)

(400)

(406)

4.0% Euro subordinated notes 2025 (Tier 2)

472

(11)

(465)

(476)

10% Sterling subordinated notes 2041 (Tier 2)

310

(13)

(300)

(313)

5.5% Sterling subordinated notes 2064 (Tier 2)

588

(600)

(600)

 

 

 

 

 

 

 

 

Senior borrowings

 

 

 

 

 

 

 

Sterling medium term notes 2031-2041

609

(11)

(590)

(10)

(611)

 

 

 

 

 

 

 

 

Client fund holdings of group debt

(76)

Total core borrowings

2,977

(47)

(465)

(590)

(1,910)

(3,012)

 

 

 

 

 

 

 

 

Short term operational borrowings

 

 

 

 

 

 

 

Euro Commercial paper

73

(73)

(73)

Bank loans/other

8

(8)

(8)

 

 

 

 

 

 

 

 

Non recourse borrowings

 

 

 

 

 

 

 

– US Dollar Triple X securitisation 2037

286

(289)

(289)

– LGV 6/LGV 7 Private Equity Fund Limited Partnership

136

(27)

(107)

(134)

– Consolidated Property Limited Partnerships

148

(148)

(148)

– Group holding of operational borrowings

(61)

Total operational borrowings

590

(108)

(255)

(289)

(652)

Total borrowings excluding unit linked borrowings

3,567

(155)

(255)

(465)

(879)

(1,910)

(3,664)

 

 

 

 

 

 

 

 

Contractual undiscounted interest payments

 

(188)

(731)

(1,709)

(1,367)

(163)

(4,158)

Total contractual undiscounted cash flows

 

(343)

(986)

(2,174)

(2,246)

(2,073)

(7,822)

 

 

Maturity profile of undiscounted cash flows

As at 31 December 20131

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

1.

Operational borrowings have been restated to reflect the adoption by the group of IFRS 10, ‘Consolidated Financial Statements’. Further details are contained in Note 1.

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 borrowings

 

 

 

 

 

 

 

– 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

129

(129)

(129)

– Group holding of operational borrowings

(58)

Total operational borrowings

647

(222)

(206)

(10)

(272)

(710)

Total borrowings excluding
unit linked borrowings

3,100

(222)

(206)

(509)

(862)

(1,310)

(3,109)

 

 

 

 

 

 

 

 

Contractual undiscounted interest payments

 

(155)

(606)

(1,417)

(1,069)

(77)

(3,324)

Total contractual undiscounted
cash flows

 

(377)

(812)

(1,926)

(1,931)

(1,387)

(6,433)

As at 31 December 2014, the group had in place a £1bn 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. No amounts were outstanding at 31 December 2014.

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 £81m (2013: £177m). Short term operational borrowings comprise Euro Commercial paper, bank loans and overdrafts.