Tuesday 27 May 2014 by Legacy

Friends Life Group PLC – New Direct Bond

Key points:

  1. Friends Life Group PLC 7.875% Tier 1 security, callable 8 November 2018 added as a DirectBond
  2. Friends Life Group is a well capitalised UK based life insurer with the security guaranteed by Friends Life Limited
  3. The new foreign currency DirectBond is available to wholesale investors only in parcel sizes of US$200,000

Earlier this week Friends Life Group PLC 7.875% Tier 1 securities were added as a new foreign currency DirectBond, available to wholesale investors in parcel sizes of US$200,000.

Friends Life Group Plc (BBB stable senior rating) is a leading financial services group that offers a range of investment, pension, and insurance products and services for individual customers and commercial businesses. It is the fifth largest Life and Pensions company in the UK (ranked by market capitalisation) and has over 5 million customers worldwide.

The group’s largest operations consist of UK life and pensions through wholly owned subsidiary Friends Life Limited (A- stable senior rating) who also guarantee the Tier 1 security at an equivalent Tier 1 perpetual level (two notches lower at BBB stable). Friends Life Limited ranks in the top 10 in terms of new business sales in the UK market, with an overall market share of around 6.3%.

The group also has a presence outside the UK with business written in Germany, Luxembourg, the Middle East and Asia.

Friends Life Group is regulated in the UK under the Financial Conduct Authority (FCA) and has strong a regulatory coverage (capital) ratio of 212% as at 30 June 2013. 

The DirectBond is issued by Friends Life Group PLC but is also guaranteed by Friends Life Limited and pays a fixed coupon 7.875% until the first call date on 8 November 2018. If not called it re-sets each six years to the prevailing US$ six year mid-swap rate plus a (very high) margin of 682.8bps. As with all Tier 1 securities, this security is technically perpetual in that there is no defined maturity date if not called.

Whilst not an “old-style” step-up security, it is considered likely to be called at first opportunity given the very high margin of 682.8bps that the securities will reset above six year swap if not called in November 2018, making it expensive funding and capital.

The security is rated BBB stable on the Tier 1 guarantee of the Friends Life Limited subsidiary.

The Tier 1 securities are available to wholesale clients only and in minimum parcel sizes of US$200,000.

Below are the key (indicative) return and pricing details:

For further information, please contract your FIIG representative.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. Available to wholesale investors only.