Moody's rates notes to be issued by Standard Life Plc
Global rating agency Moody's has assigned a Baa2(hyb) rating to the dated subordinated notes to be issued by Standard Life Plc (SL).
The rating is based on the expectation that there will be no material difference between current and final documentation in relation to the notes.
The outlook is stable in line with those of SL and the main operating company, Standard Life Assurance Limited (SLAL). The unguaranteed subordinated notes are issued under the EMTN programme and rank subordinated to the senior creditors of SL.
The Baa2(hyb) rating is driven by the A1 IFSR of SLAL, and the four notch gap between SLAL's IFSR and the holding company subordinated debt rating is consistent with Moody's typical notching practice for European insurance companies.
This will be the first unguaranteed hybrid capital issue by Standard Life Plc.
The proceeds will be used for general corporate purposes, although we note that the subordinated Euro 750m instrument which was tendered in H2 2011 (with the stub called in July 2012) was not immediately refinanced.
The new notes will qualify as regulatory capital under the existing Solvency I rules and are designed to qualify as Tier Two regulatory capital under the forthcoming Solvency II regime.
The notes will receive some equity credit from Moody's based on the 30 year maturity of the notes. The notes contain a mandatory interest deferral trigger based upon breach of regulatory capital requirements. Under the existing EU Solvency I rules, Moody's regards this trigger as weak.
The terms of the bond allow the trigger to switch to the Solvency II capital requirements when the Solvency II regulations are activated.
As Solvency II is designed to be a more rigorous solvency regime, Moody's view on the strength of the trigger may change.
Moody's expects to publish guidance on how it will assess the new Solvency II triggers within the context of ratings, equity credit and the implementation timetable in due course.
The coupons on the new instrument are fully deferrable on an optional basis.