FIIG - The Fixed Income Experts

News and Education

Friends Life Group PLC – New Direct Bond

by Justin McCarthy | Feb 04, 2014

Key points:

  1. Friends Life Group PLC 6.292% step-up (“old-style”) Tier 1 security, callable 1 July 2015 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 parcels of £100,000

Last week Friends Life Group PLC 6.292% step-up Tier 1 securities were added as a new foreign currency DirectBond, available to wholesale investors in parcels of £100,000.

Company background

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 five 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 a strong regulatory coverage (capital) ratio of 212% as at 30 June 2013. 

Details of the bond

  • Issued by Friends Life Group PLC but is guaranteed by Friends Life Limited
  • Fixed coupon of 6.292% until the first call date on 1 July 2015
  • If not called the coupon re-sets each five years to the prevailing five year UK Treasury bond plus a stepped-up margin of 278bps
  • Like all Tier 1 securities, it is perpetual

Detailed below are the key (indicative) return and pricing details:
Benefits to investors

  • As an “old-style” step-up security, it is considered more likely to be called at first opportunity given regulatory developments in the UK (subject to market conditions and regulatory approval at the time). The significant step-up also gives us confidence this bond will be called at the first opportunity
  • Only 18 months until call date
  • High running yield and attractive yield to call given the low interest rate environment in the UK
  • Investment grade rating of BBB (stable outlook)

Please speak to your FIIG representative if you are interested in the new DirectBond or would like further details.

All prices and yields are a guide only and subject to market availability. FIIG does not make a market in these securities. Friends Life Tier 1 securities are only available to wholesale investors.