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Fitch Rates Legal & General's Subordinated Debt 'BBB+'
March 21, 2017 / 2:41 PM / 9 months ago

Fitch Rates Legal & General's Subordinated Debt 'BBB+'

(The following statement was released by the rating agency) LONDON, March 21 (Fitch) Fitch Ratings has assigned Legal & General Group plc's (L&G) USD850m subordinated notes due 2047 a 'BBB+' rating. The notes are rated three notches below L&G's 'A+' Issuer Default Rating, comprising two notches for the level of subordination and one for 'moderate' non-performance risk. KEY RATING DRIVERS The notes have been issued by L&G under its GBP4 billion euro note programme. The proceeds will be used to refinance the group's borrowings and provide general business funding. The notes carry a fixed coupon rate of 5.25% until 21 March 2027, and are callable on any reset date. The first reset date is 21 March 2027 and thereafter the reset dates are every five years until the final maturity date of 21 March 2047. If the issue is not called at a reset date, the interest resets to the aggregate of the prevailing five-year USD mid-swap rate plus 2.687% and a 1.00% step-up margin. In a potential winding-up scenario the securities would rank senior to L&G's GBP400m 5.875% undated subordinated notes, any tier one capital and the claims of shareholders, pari passu with L&G's other Tier 2 capital, and junior to the claims of all senior creditors. The level of subordination is reflected in Fitch's 'poor' baseline recovery assumption for the issue. The notes include a mandatory interest deferral feature, which would be triggered if the company or the group is not able to meet the applicable solvency capital requirement, the minimum capital requirement, or equivalent conditions required for the notes to qualify as Tier 2 regulatory capital. Under the agency's methodology, Fitch regards this mandatory interest deferral feature as leading to 'moderate' non-performance risk. The notes qualify for Tier 2 regulatory capital recognition under Solvency II. The notes receive 100% equity credit in Fitch's Prism Factor-Based Model, due to the application of the regulatory override. However, given that it is a dated instrument, the notes are treated as 100% debt in Fitch's financial debt leverage calculation. The issuance will increase L&G's financial leverage in the short term. However, the company has also announced its intention to call GBP600 million of subordinated debt in May 2017. Our prospective assessment of L&G's financial leverage therefore remains broadly unchanged. RATING SENSITIVITIES The notes' rating is subject to the same sensitivities that may affect L&G's Long-Term IDR (for more details, see Fitch Affirms Legal & General's IFS at 'AA-'; Outlook Stable, dated 14 July 2016 at Contact: Primary Analyst Sam Mageed Director +44 20 3530 1704 Fitch Ratings Limited 30 North Colonnade London E14 5GN Secondary Analyst Willem Loots Senior Director +44 20 3530 1808 Committee Chair Chris Waterman Managing Director +44 20 3530 1168 Date of relevant rating committee: 13 July 2016 Media Relations: Athos Larkou, London, Tel: +44 203 530 1549, Email: Additional information is available on Applicable Criteria Insurance Rating Methodology - Effective May 17, 2016 to Sept. 15, 2016 (pub. 17 May 2016) here Additional Disclosures Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEB SITE AT WWW.FITCHRATINGS.COM. PUBLISHED RATINGS, CRITERIA, AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE, AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE CODE OF CONDUCT SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE. Copyright © 2016 by Fitch Ratings, Inc., Fitch Ratings Ltd. and its subsidiaries. 33 Whitehall Street, NY, NY 10004. Telephone: 1-800-753-4824, (212) 908-0500. Fax: (212) 480-4435. Reproduction or retransmission in whole or in part is prohibited except by permission. All rights reserved. In issuing and maintaining its ratings and in making other reports (including forecast information), Fitch relies on factual information it receives from issuers and underwriters and from other sources Fitch believes to be credible. Fitch conducts a reasonable investigation of the factual information relied upon by it in accordance with its ratings methodology, and obtains reasonable verification of that information from independent sources, to the extent such sources are available for a given security or in a given jurisdiction. The manner of Fitch’s factual investigation and the scope of the third-party verification it obtains will vary depending on the nature of the rated security and its issuer, the requirements and practices in the jurisdiction in which the rated security is offered and sold and/or the issuer is located, the availability and nature of relevant public information, access to the management of the issuer and its advisers, the availability of pre-existing third-party verifications such as audit reports, agreed-upon procedures letters, appraisals, actuarial reports, engineering reports, legal opinions and other reports provided by third parties, the availability of independent and competent third- party verification sources with respect to the particular security or in the particular jurisdiction of the issuer, and a variety of other factors. Users of Fitch’s ratings and reports should understand that neither an enhanced factual investigation nor any third-party verification can ensure that all of the information Fitch relies on in connection with a rating or a report will be accurate and complete. Ultimately, the issuer and its advisers are responsible for the accuracy of the information they provide to Fitch and to the market in offering documents and other reports. In issuing its ratings and its reports, Fitch must rely on the work of experts, including independent auditors with respect to financial statements and attorneys with respect to legal and tax matters. Further, ratings and forecasts of financial and other information are inherently forward-looking and embody assumptions and predictions about future events that by their nature cannot be verified as facts. As a result, despite any verification of current facts, ratings and forecasts can be affected by future events or conditions that were not anticipated at the time a rating or forecast was issued or affirmed. The information in this report is provided “as is” without any representation or warranty of any kind, and Fitch does not represent or warrant that the report or any of its contents will meet any of the requirements of a recipient of the report. A Fitch rating is an opinion as to the creditworthiness of a security. This opinion and reports made by Fitch are based on established criteria and methodologies that Fitch is continuously evaluating and updating. Therefore, ratings and reports are the collective work product of Fitch and no individual, or group of individuals, is solely responsible for a rating or a report. The rating does not address the risk of loss due to risks other than credit risk, unless such risk is specifically mentioned. Fitch is not engaged in the offer or sale of any security. All Fitch reports have shared authorship. Individuals identified in a Fitch report were involved in, but are not solely responsible for, the opinions stated therein. The individuals are named for contact purposes only. A report providing a Fitch rating is neither a prospectus nor a substitute for the information assembled, verified and presented to investors by the issuer and its agents in connection with the sale of the securities. Ratings may be changed or withdrawn at any time for any reason in the sole discretion of Fitch. Fitch does not provide investment advice of any sort. Ratings are not a recommendation to buy, sell, or hold any security. Ratings do not comment on the adequacy of market price, the suitability of any security for a particular investor, or the tax-exempt nature or taxability of payments made in respect to any security. Fitch receives fees from issuers, insurers, guarantors, other obligors, and underwriters for rating securities. Such fees generally vary from US$1,000 to US$750,000 (or the applicable currency equivalent) per issue. In certain cases, Fitch will rate all or a number of issues issued by a particular issuer, or insured or guaranteed by a particular insurer or guarantor, for a single annual fee. Such fees are expected to vary from US$10,000 to US$1,500,000 (or the applicable currency equivalent). The assignment, publication, or dissemination of a rating by Fitch shall not constitute a consent by Fitch to use its name as an expert in connection with any registration statement filed under the United States securities laws, the Financial Services and Markets Act of 2000 of the United Kingdom, or the securities laws of any particular jurisdiction. Due to the relative efficiency of electronic publishing and distribution, Fitch research may be available to electronic subscribers up to three days earlier than to print subscribers. For Australia, New Zealand, Taiwan and South Korea only: Fitch Australia Pty Ltd holds an Australian financial services license (AFS license no. 337123) which authorizes it to provide credit ratings to wholesale clients only. Credit ratings information published by Fitch is not intended to be used by persons who are retail clients within the meaning of the Corporations Act 2001

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