Aviva 2005 Annual Report Download - page 172

Financial statements continued
Notes to the consolidated financial statements continued
43 – Borrowings continued
(ii) Debenture loans
The 9.5% guaranteed bonds were issued by the Company at a discount of £1.1 million. This amount, together with the issue expenses,
is being amortised over the full term of the bonds. Although these bonds were issued in sterling, the loans have effectively been
converted into euro liabilities through the use of financial instruments in a subsidiary.
The 2.5% perpetual subordinated loan notes were issued by a Dutch subsidiary to finance the acquisition of NUTS OHRA Beheer BV
in 1999. They are convertible into ordinary shares in Delta Lloyd NV, should there be a public offering of those shares. These loan notes
have a face value of a489.9 million but, because they are considered to be perpetual, their carrying value is a172.4 million, calculated in
1999 and based on the future cash flows in perpetuity discounted back at a market rate of interest. The rate of interest paid on the notes
is being gradually increased to a maximum of 2.76% in 2009.
Other loans comprise borrowings in Canada, France, the Netherlands and Spain.
Fixed rate borrowings comprise £317 million (2004: £541 million) of the total carrying value of £334 million (2004: £564 million).
Their fair value at 31 December 2005 was £405 million (2004: £622 million).
(iii) Bank loans
In September 2004, one of the Group’s UK long-term business subsidiaries, Norwich Union Life & Pensions Limited (NULAP), entered into
a securitisation arrangement with The Royal Bank of Scotland Group plc (RBS), to provide funding to cover initial new business acquisition
and administration costs in the period when these exceed accumulated premiums received. Under the arrangement, RBS has provided a
loan facility of £200 million to NULAP in respect of selected term assurance policies, secured on future premiums and repayment of
commissions due from brokers where a policy has lapsed. The funding is repayable over four years from the date of advance, and interest
is charged at a floating rate. The balance drawn on the facility at 31 December 2005 was £191 million (2004: £91 million). RBS has no
recourse to the policyholder or shareholders’ funds of any companies in the Aviva Group.
As explained in note 17b, the UK long-term business policyholder funds have invested in a number of property limited partnerships (PLPs).
The PLPs have raised external debt, secured on their respective property portfolios, and the lenders are only entitled to obtain payment of
both interest and principal to the extent there are sufficient resources in the respective PLPs. The lenders have no recourse whatsoever to
the policyholder or shareholders’ funds of any companies in the Aviva Group. Loans of £nil (2004: £57 million) included in the tables
above relate to those PLPs which have been consolidated as subsidiaries.
(iv) Commercial paper
The commercial paper consists of £500 million in the Company (2004: £870 million) and £3 million in France (2004: £11 million).
All commercial paper is repayable within one year and is issued in a number of different currencies, primarily sterling, euros and
US dollars.
(v) Securitised mortgage loan notes
Loan notes have been issued by special purpose securitisation companies in the United Kingdom and the Netherlands. Details of these
securitisations are given in note 22.
(c) Movements during the year
Movements in borrowings during the year were:
2005 2004
£m £m
New borrowings drawn down, net of expenses 5,441 2,623
Repayment of borrowings (4,585) (1,097)
Net cash inflow 856 1,526
Foreign exchange rate movements (149) 27
Borrowings acquired/loans repaid for non-cash consideration 173 25
Amortisation of discounts and other non-cash items 43 145
Movements in the year 923 1,723
Balance at 1 January 10,090 8,367
Balance at 31 December 11,013 10,090
Aviva plc 2005 Financial statements
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