Sun Life 2010 Annual Report Download - page 114

Each SLEECS A or SLEECS B and each $1,000 principal amount of SLEECS 2009-1 will be automatically exchanged for
40 non-cumulative perpetual preferred shares of Sun Life Assurance if any one of the following events occurs: (i) proceedings are
commenced or an order is made for the winding-up of Sun Life Assurance; (ii) OSFI takes control of Sun Life Assurance or its assets;
(iii) Sun Life Assurance’s Tier 1 capital ratio is less than 75% or its MCCSR ratio is less than 120%; or (iv) OSFI directs Sun Life
Assurance to increase its capital or provide additional liquidity and Sun Life Assurance either fails to comply with such direction or
elects to have the SLEECS automatically exchanged (“Automatic Exchange Event”). Upon an Automatic Exchange Event, former
holders of the SLEECS will cease to have any claim or entitlement to distributions, interest or principal against the issuing SL Capital
Trust and will rank as preferred shareholders of Sun Life Assurance in a liquidation of Sun Life Assurance.
According to OSFI guidelines, innovative capital instruments can comprise up to 15% of net Tier 1 capital with an additional 5% eligible
for Tier 2B capital. As at December 31, 2010, for regulatory capital purposes of Sun Life Assurance, $1,442 (2009 – $1,300, 2008 –
$1,150) represents Tier 1 capital, and $202 (2009 – $344, 2008 – $nil) represents Tier 2B capital.
The SL Capital Trusts are variable interest entities under CICA Handbook Accounting Guideline 15, Consolidation of Variable Interest
Entities (AcG-15). SLF Inc. is not exposed to the majority of any SL Capital Trust expected losses or expected residual returns and
therefore is not the primary beneficiary under AcG-15. Accordingly, SLF Inc. does not consolidate the SL Capital Trusts, and the
SLEECS are not reported on our Consolidated Balance Sheets of SLF Inc. However, the senior debentures issued by Sun Life
Assurance to the SL Capital Trusts are reported under Senior Debentures and interest expense is recognized on the senior
debentures.
The table below presents additional significant terms and conditions of the SLEECS.
Issuer Issuance date
Distribution or interest
payment dates
Annual
yield
Redemption date
at the issuer’s option
Conversion date
at the holder’s option
2010
Principal
amount
2009
Principal
amount
2008
Principal
amount
Sun Life Capital Trust(1),(2),(3),(4)
950 SLEECS A October 19, 2001 June 30, December 31 6.865% December 31, 2006 Any time $ 950 $ 950 $ 950
200 SLEECS B June 25, 2002 June 30, December 31 7.093% June 30, 2007 Any time $ 200 $ 200 $ 200
$ 1,150 $ 1,150 $ 1,150
Sun Life Capital Trust II(1),(2)
500 SLEECS 2009-1 November 20, 2009 June 30, December 31 5.863%(5) December 31, 2014 No conversion option $ 500 $ 500 –
(1) Subject to the approval of OSFI, (i) the SL Capital Trusts may, in whole or in part, on the redemption date specified above or on any distribution date thereafter, or in the case
of SLCT II, on any date thereafter, redeem any outstanding SLEECS without the consent of the holders, and (ii) upon occurrence of a regulatory event or a tax event (as
defined), prior to the redemption date specified above, the SL Capital Trusts may redeem all, but not part of, any class of SLEECS without the consent of the holders.
(2) The SLEECS A may be redeemed for cash equivalent to (i) the greater of the Early Redemption Price or the Redemption Price if the redemption occurs prior to December 31,
2011 or (ii) the Redemption Price if the redemption occurs on or after December 31, 2011. The SLEECS B may be redeemed for cash equivalent to (i) the greater of the Early
Redemption Price or the Redemption Price if the redemption occurs prior to June 30, 2032 or (ii) the Redemption Price if the redemption occurs on or after June 30, 2032.
Redemption Price refers to an amount equal to $1,000 plus the unpaid distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption
date. Early Redemption Price refers to the price calculated to provide an annual yield, equal to the yield of a Government of Canada bond issued on the redemption date that
(i) in the case of the SLEECS A, has a maturity date of December 31, 2011, plus 37 basis points, or (ii) in the case of the SLEECS B, has a maturity date of June 30, 2032,
plus 32 basis points, and in each case plus the unpaid distributions, other than unpaid distributions resulting from a Missed Dividend Event, to the redemption date. The
SLEECS 2009-1 may be redeemed for cash equivalent to, on any day that is not an Interest Rate Reset Date, accrued and unpaid interest on the SLEECS 2009-1 plus the
greater of par and a price calculated to provide an annual yield equal to the yield of a Government of Canada bond maturing on the next Interest Reset Date plus (i) 0.60% if
the redemption date is prior to December 31, 2019 or (ii) 1.20% if the redemption date is any time after December 31, 2019. On an Interest Rate Reset Date, the redemption
price is equal to par plus accrued and unpaid interest on the SLEECS 2009-1.
(3) The non-cumulative perpetual preferred shares of Sun Life Assurance issued upon an Automatic Exchange Event in respect of the SLEECS A and SLEECS B will become
convertible, at the option of the holder, into a variable number of common shares of SLF Inc. on distribution dates on or after June 30, 2012 in respect of the SLEECS A and on
distribution dates on or after December 31, 2032 in respect of the SLEECS B.
(4) Holders of SLEECS A and SLEECS B may exchange, at any time, all or part of their holdings of SLEECS A or SLEECS B at a price for each SLEECS of 40 non-cumulative
perpetual preferred shares of Sun Life Assurance. SLCT I will have the right, at any time before the exchange is completed, to arrange for a substituted purchaser to purchase
SLEECS tendered for surrender to SLCT I so long as the holder of the SLEECS so tendered has not withheld consent to the purchase of its SLEECS. Any non-cumulative
perpetual preferred shares issued in respect of an exchange by the holders of SLEECS A or SLEECS B will become convertible, at the option of the holder, into a variable
number of common shares of SLF Inc. on distribution dates on or after June 30, 2012 in respect of the SLEECS A and on distribution dates on or after December 31, 2032 in
respect of the SLEECS B.
(5) Holders of SLEECS 2009-1 are eligible to receive semi-annual interest payments at a fixed rate until December 31, 2019. The interest rate on the SLEECS 2009-1 will reset on
December 31, 2019 and every fifth anniversary thereafter to equal the five-year Government of Canada bond yield plus 3.40%.
110 Sun Life Financial Inc. Annual Report 2010 Notes to the Consolidated Financial Statements