Aviva 2006 Annual Report Download - page 192

Aviva plc
Annual Report and Accounts 2006 188
Notes to the consolidated financial statements continued
43 – Borrowings continued
(b) Description and features
(i) Subordinated debt
Adescription of each of the subordinated notes is set out in the table below:
In the event the Company does not call
Callable at par at option the notes, the coupon will reset at
Notional amount Issue date Redemption date of the Company from each applicable reset date to
£700 million 14 Nov 2001 14 Nov 2036 16 Nov 2026 5 year Benchmark Gilt + 2.85%
a800 million 14 Nov 2001 14 Nov 2021 14 Nov 2011 3 month Euribor + 2.12%
a650 million 29 Sep 2003 02 Oct 2023 02 Oct 2013 3 month Euribor + 2.08%
a500 million 29 Sep 2003 Undated 29 Sep 2015 3 month Euribor + 2.35%
£800 million 29 Sep 2003 Undated 29 Sep 2022 5 year Benchmark Gilt + 2.40%
US$300 million 19 Dec 2006 19 Jun 2017 19 Jun 2012 US LIBOR + 0.84%
The subordinated notes were issued by the Company. They rank below its senior obligations and ahead of its preference shares and
ordinary share capital. The dated subordinated notes rank ahead of the undated subordinated notes. The fair value of these notes at
31 December 2006 was £3,076 million (2005: £3,148 million),calculated with reference to quoted prices.
(ii) Debenture loans
The 9.5% guaranteed bonds were issued by the Company at a discount of £1.1 million. This discount and the issue expenses are being
amortised over the full term of the bonds. Although these bonds wereissued 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
aface 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.
The 5.95% Senior Notes had been issued by a United States subsidiary prior to acquisition by the Group. These notes may be redeemed
at the Group’s option at any time, in whole or in part, subject to payment of a redemption premium. On 23 February 2007, the
subsidiary exercised its option to redeem the notes early for an amount not significantly different to their carrying value. As a result, these
notes have been shown in table (a) as maturing within one year.
Other loans comprise borrowings in the United States and the Netherlands.
Fixed rate borrowings comprise £535 million (2005: £317 million) of the total carrying value of £644 million (2005: £334 million).
The fair value of debenture loans at 31 December 2006 was £703 million (2005: £405 million),calculated with reference to quoted prices
or discounted future cash flows as appropriate.
(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 (RBSG), to provide funding to cover initial new business
acquisition and administration costs. Under the arrangement, an RBSG company 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. RBSG has no
recourse to the policyholder or shareholders’ funds of any companies in the Aviva Group. The balance drawn on the facility at
31 December 2006 was £200 million (2005: £191 million).On 12 January 2007, under a Deed of Release and Termination, this
arrangement was cancelled.
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 therearesufficient 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 £259 million (2005: £156 million) included in the
tables relate to those PLPs which have been consolidated as subsidiaries.
The fair value of these loans is considered to be the same as their carrying value.
(iv) Commercial paper
The commercial paper consists of £733 million in the Company (2005: £499 million) and £4 million in France (2005: £4 million).
All commercial paper is repayable within one year and is issued in a number of different currencies, primarily sterling, euros and
US dollars.
The fair value of the commercial paper is considered to be the same as its carrying value.
Financial statements continued