Phoenix in comprehensive refinancing of debt structure
Phoenix Group Holdings ("Phoenix" and, together with its subsidiaries, the "Group") is today announcing a comprehensive refinancing of its senior debt structure, creating a new single debt facility while also reducing the Group's debt and gearing.
The refinancing is in line with the Group's strategy to simplify and strengthen the Group's balance sheet, supporting its aim to achieve an investment grade rating in the future. It also enhances Phoenix's ability to deliver on its ambitions to lead the consolidation of the UK closed life fund sector.
Highlights
· New £900 million, unsecured 5 year bank facility to refinance the entirety of the Group's existing two bank facilities and PIK notes, replacing the two legacy debt silos (Pearl and Impala) with a single debt facility
· £206 million prepayment of debt to be made on drawdown of the new facility. Total senior debt has therefore reduced from over £1.7 billion at the start of 2014 to £1.2 billion1, consisting of the new £900 million facility and the £300 million senior bond issued on 7 July
· Lower interest costs with ability for margin reductions if the Group lowers gearing and/or achieves an investment grade rating
· Supports Phoenix's sustainable dividend policy
· Strengthens Phoenix's financial flexibility to pursue its growth strategy of acquiring closed life funds
Clive Bannister, Group Chief Executive, commented:
"Following our successful return to the bond market earlier this month, this new bank facility is the next step in Phoenix Group's development. The new facility allows us to simplify the Group's structure and offers us greater flexibility as we execute our growth strategy. Furthermore, under the terms of the new agreement, we have the ability to further reduce the margin on the new facility as we seek a future investment grade credit rating."
Summary of transaction
At the time of the issue of the £300 million 5.75% 7 year senior bond on 7 July, Phoenix stated that it was in discussions with a group of lenders in relation to a proposed new single unsecured facility which would be used to repay the remaining senior bank debt and PIK notes. Today, Phoenix announces that it has entered into a new £900 million unsecured bank facility (the "Facility"), the borrower of which will be PGH Capital Limited, a financing subsidiary of Phoenix. The facility will be guaranteed by Phoenix.
The Facility, together with a prepayment of £206 million of the existing Group debt, will fully refinance the Group's two legacy debt silos including associated PIK notes.
The transaction has a number of benefits for the Group, including:
· Refinances all senior bank debt and PIK notes into a single unsecured senior 5 year facility at PGH Capital Limited, which will rank pari passu with the £300 million 5.75% 7 year bond issued on 7 July 2014;
· Smoothes the amortisation profile, better matching the Group's cash generation, with the removal of the Pearl silo bullet due in 2016;
· Reduces interest margin to 350bps above Libor (compared to the margin of 475bps on the current Impala facility), with the ability to reduce the margin further in the event of lower gearing and/or achievement of Investment Grade rating;
· Supports Phoenix's target to achieve an Investment Grade rating in the future;
· Reduces banking restrictions and covenants, improving the fungibility of capital across the group and enabling greater flexibility with regard to future acquisitions; and
· Supports Phoenix's plans to simplify the Group structure, including a potential future merger of the Group's two largest UK life companies.
Phoenix will announce its 2014 interim results on 21 August.
Details of facilities agreement
Phoenix Group Holdings (the "Guarantor") and its subsidiary PGH Capital Limited (the "Borrower") have entered into a £900 million facilities agreement dated 23 July 2014 between, among others, PGH Capital Limited (as borrower), Phoenix Group Holdings (as guarantor) and Commerzbank Aktiengesellschaft, Luxembourg Branch (as agent) (the "Facilities Agreement").
The Facilities Agreement comprises a £450 million unsecured revolving loan facility (the "Revolving Credit Facility") and a £450 million unsecured amortising term loan facility (the "Term Facility"), with each such facility guaranteed by the Guarantor. Both facilities will be fully drawn, with the proceeds applied towards the refinancing of the existing indebtedness of the Group.
The facilities each have a final maturity date of 23 July 2019, subject to a right of the Guarantor to request a two year extension to the term of the Revolving Credit Facility.
The Term Facility is repayable in semi-annual instalments of £30 million each, on 30 June and 31 December of each year from 31 December 2014. The Borrower is also required to target the repayment of additional semi-annual instalments of £30 million on 30 June and 31 December of each year from 30 June 2015. Failure by the Borrower to make a target repayment will not constitute a default under the Facilities Agreement. However it will trigger restrictions on the declaration of dividends or distributions by the Guarantor while the target repayment remains outstanding. No similar target repayments are required in relation to the Revolving Credit Facility.
The facilities bear interest at LIBOR plus an opening margin of 3.50 per cent. per annum in respect of the Term Facility and 3.25 per cent. per annum in respect of the Revolving Credit Facility. After the first six month period, the margins applicable to each facility will change in accordance with a margin ratchet which operates by reference to the Group's gearing ratio. The margins in the margin ratchet will also be reduced by a further 0.50 per cent per annum for so long as the Borrower or the Guarantor holds an investment grade rating in respect of any debt they have issued or incurred.
Amongst other customary fees, the Borrower is required to pay a utilisation fee of 0.25 per cent. per annum in respect of the Revolving Credit Facility for so long as the amount outstanding under the Revolving Credit Facility exceeds 50 per cent. of the total commitments of the Revolving Credit Facility.
Completion of the Facilities Agreement is subject to satisfaction of certain conditions and is expected shortly.
Enquiries
Equity Investors:
Sam Perowne, Head of Investor Relations, Phoenix Group
+44 (0) 20 3735 0021
Debt Investors:
Rashmin Shah, Group Treasurer, Phoenix Group
+44 (0) 20 3735 0059
Media:
Neil Bennett, Maitland
Peter Ogden, Maitland
+ 44 (0) 20 7379 5151
Notes
1) The total face value of the Group's senior debt as at 31 December 2013 was £1,734 million, consisting of £1,182 million of Impala bank debt, £121 million of Impala PIK notes, £350 million of Pearl bank debt and £81 million of Pearl PIK notes. Debt repayments during 2014 include £250 million from the proceeds of the Ignis divestment, £296 million from the net proceeds of the senior bond issue and £85 million of amortisation payments, with an additional £206 million prepayment of debt to be made on drawdown of the new facility (of which £3 million relates to additional capitalised interest on the PIK notes during the first half of 2014).
2) The £206 million prepayment of debt to be made on drawdown of the new facility will reduce gearing by 2% relative to MCEV and debt positions at 31 December 2013.
3) The potential future merger of the Group's two largest UK life companies would be subject to, amongst other things, regulatory consent and the security charges in favour of the Pearl pension scheme.
4) Phoenix is the UK's largest specialist consolidator of closed life funds with over 5 million policyholders as at 31 December 2013.
Disclaimer
This announcement in relation to Phoenix Group Holdings and its subsidiaries (the 'Group') contains, and we may make other statements (verbal or otherwise) containing, forward-looking statements and other financial and/or statistical data about the Group's current plans, goals and expectations relating to future financial conditions, performance, results, strategy and/or objectives.
Statements containing the words: 'believes', 'intends', 'expects', 'plans', 'seeks', 'targets', 'continues' and 'anticipates' or other words of similar meaning are forward-looking. Such forward-looking statements and other financial and/or statistical data involve risk and uncertainty because they relate to future events and circumstances that are beyond the Group's control. For example, certain insurance risk disclosures are dependent on the Group's choices about assumptions and models, which by their nature are estimates. As such, actual future gains and losses could differ materially from those that the Group has estimated.
Other factors which could cause actual results to differ materially from those estimated by forward-looking statements include but are not limited to: domestic and global economic and business conditions; asset prices; market related risks such as fluctuations in interest rates and exchange rates, and the performance of financial markets generally; the policies and actions of governmental and/or regulatory authorities, including, for example, new government initiatives related to the financial crisis and ultimate transition to the European Union's "Solvency II" Directive on the Group's capital maintenance requirements; the impact of inflation and deflation; market competition; changes in assumptions in pricing and reserving for insurance business (particularly with regard to mortality and morbidity trends, gender pricing and lapse rates); the timing, impact and other uncertainties of future acquisitions or combinations within relevant industries; risks associated with arrangements with third parties; inability of reinsurers to meet obligations or unavailability of reinsurance coverage; the impact of changes in capital, solvency or accounting standards, and tax and other legislation and regulations in the jurisdictions in which members of the Group operate.
As a result, the Group's actual future financial condition, performance and results may differ materially from the plans, goals and expectations set out in the forward-looking statements and other financial and/or statistical data within this announcement. The Group undertakes no obligation to update any of the forward-looking statements or data contained within this announcement or any other forward-looking statements or data it may make or publish. Nothing in this announcement should be construed as a profit forecast or estimate.
