Sun Life 2015 Annual Report Download - page 147

14. Senior Debentures and Innovative Capital Instruments
14.A Senior Debentures
The following Canadian dollar obligations are included in Senior debentures:
Interest
rate
Earliest par
call date Maturity
December 31,
2015
December 31,
2014
SLF Inc. senior unsecured debentures
Series A issued November 23, 2005(1) 4.80% November 23, 2015 2035 $– $ 600
Series B issued March 13, 2006(2) 4.95% June 1, 2016(3) 2036 700 700
Series B issued February 26, 2007(2) 4.95% June 1, 2016(3) 2036 250 251
Series D issued June 30, 2009 5.70% n/a(4) 2019 300 300
Series E issued August 23, 2011 4.57% n/a(4) 2021 298 298
Sun Life Assurance debentures(5)
Issued to Sun Life Capital Trust I (“SLCT I”)
Series B issued June 25, 2002 7.09% June 30, 2032(6) 2052 200 200
Issued to Sun Life Capital Trust II (“SLCT II”)
Series C issued November 20, 2009(7) 6.06% December 31, 2019(8) 2108 500 500
Total senior debentures $ 2,248 $ 2,849
Fair value $ 2,464 $ 3,139
(1) Redeemed on November 23, 2015 at redemption price equal to the principal amount together with accrued and unpaid interest to that date.
(2) From June 1, 2016, interest is payable at 1% over the Canadian dollar offered rate for three-month bankers’ acceptances (“CDOR”).
(3) The relevant debenture may be redeemed, at par, on an interest payment date on or after the date noted, at the option of the issuer.
(4) The relevant debenture may be redeemed, at the option of SLF Inc. at any time, at a redemption price equal to the greater of par and a price based on the yield of a
corresponding Government of Canada bond.
(5) The Sun Life Assurance debentures were issued to SLCT I and SLCT II, which issued innovative capital instruments and used the proceeds to purchase Sun Life Assurance
debentures. Further details about SLCT I and SLCT II are described later in this Note.
(6) This debenture may be redeemed, at the option of the issuer, in whole or in part on any interest payment date or in whole upon the occurrence of a Regulatory Event or Tax
Event, as described in the debenture. Prior to June 30, 2032, the redemption price is the greater of par and a price based on the yield of a corresponding Government of
Canada bond plus 0.32%; from June 30, 2032, the redemption price is par. Redemption is subject to regulatory approval.
(7) On December 31, 2019, and every fifth anniversary thereafter (“Interest Reset Date”), the interest rate will reset to an annual rate equal to the five-year Government of
Canada bond yield plus 3.60%.
(8) On or after December 31, 2014, this debenture may be redeemed in whole or in part at the option of the issuer. If redemption occurs on an Interest Reset Date, the
redemption price is par; otherwise, it is the greater of par and a price based on the yield of a corresponding Government of Canada bond plus (i) 0.65% if redemption occurs
prior to December 31, 2019, or (ii) 1.30% if redemption occurs after December 31, 2019. Also, at the option of the issuer, this debenture may be redeemed in whole at par at
any time upon the occurrence of a Regulatory Event or Tax Event, as described in the debenture. Redemption is subject to regulatory approval.
Fair value is determined based on quoted market prices for identical or similar instruments. When quoted market prices are not
available, fair value is determined from observable market data by dealers that are typically the market makers. The fair value is
categorized in Level 2 of the fair value hierarchy.
Interest expense for senior debentures was $148 and $151 for 2015 and 2014.
All senior unsecured debentures of SLF Inc. are direct senior unsecured obligations of SLF Inc. and rank equally with other unsecured
and unsubordinated indebtedness of SLF Inc.
14.B Innovative Capital Instruments
Innovative capital instruments consist of Sun Life ExchangEable Capital Securities (“SLEECS”), which were issued by SLCT I and
SLCT II (together “SL Capital Trusts”), established as trusts under the laws of Ontario. SLCT I issued Sun Life ExchangEable
Securities – Series B (“SLEECS B”), which are classes of units that represent an undivided beneficial ownership interest in the assets
of that trust. SLEECS B are non-voting except in certain limited circumstances. Holders of the SLEECS B are eligible to receive semi-
annual non-cumulative fixed cash distributions. SLCT II issued Sun Life ExchangEable Capital Securities – Series 2009-1 (“SLEECS
2009-1”), which are subordinated unsecured debt obligations. Holders of SLEECS 2009-1 are eligible to receive semi-annual interest
payments. The proceeds of the issuances of SLEECS B and SLEECS 2009-1 were used by the SL Capital Trusts to purchase senior
debentures of Sun Life Assurance. The SL Capital Trusts are not consolidated by us. As a result, the innovative capital instruments are
not reported on our Consolidated Financial Statements. However, the senior debentures issued by Sun Life Assurance to the SL
Capital Trusts are reported on our Consolidated Financial Statements.
The SLEECS are structured with the intention of achieving Tier 1 regulatory capital treatment for SLF Inc. and Sun Life Assurance and,
as such, have features of equity capital. No interest payments or distributions will be paid in cash by the SL Capital Trusts on the
SLEECS if Sun Life Assurance fails to declare regular dividends (i) on its Class B Non-Cumulative Preferred Shares Series A, or (ii) on
its public preferred shares, if any are outstanding (each, a “Missed Dividend Event”). In the case of the SLEECS 2009-1, if a Missed
Dividend Event occurs or if an interest payment is not made in cash on the SLEECS 2009-1 for any reason, including at the election of
Sun Life Assurance, holders of the SLEECS 2009-1 will be required to invest interest paid on the SLEECS 2009-1 in non-cumulative
perpetual preferred shares of Sun Life Assurance. In the case of the SLEECS B, if a Missed Dividend Event occurs, the net
distributable funds of SLCT I will be distributed to Sun Life Assurance as the holder of Special Trust Securities of that trust. If the SL
Capital Trusts fail to pay in cash the semi-annual interest payments or distributions on the SLEECS in full for any reason other than a
Missed Dividend Event, then, for a specified period of time, Sun Life Assurance will not declare dividends of any kind on any of its
public preferred shares, and if no such public preferred shares are outstanding, SLF Inc. will not declare dividends of any kind on any
of its preferred shares or common shares.
Notes to Consolidated Financial Statements Sun Life Financial Inc. Annual Report 2015 145