Aviva 2009 Annual Report Download - page 244

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Aviva plc Notes to the consolidated financial statements continued
Annual Report and Accounts 2009
48 – Borrowings continued
(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 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 Delta Lloyd to finance the acquisition of NUTS OHRA Beheer BV
in 1999. As part of the public offering of Delta Lloyd, their nominal value was increased to €497 million
(2008: €490 million) .
However, because they are considered to be perpetual, their carrying value is lower at €177 million
(2008: €172 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 has been gradually increased to a maximum of 2.76% in 2009.
Other loans totalling £13 million
(2008: £14 million) comprise borrowings in the United States.
All these borrowings are at fixed rates and their fair value at 31 December 2009 was £552 million
(2008: £663 million) ,
calculated with reference to quoted prices or discounted future cash flows as appropriate.
(iii) Commercial paper
The commercial paper consists of £483 million in the Company
(2008: £535 million, 2007: £918 million) and £nil in France
(2008: £5 million, 2007: £4 million) . All of this is considered core structural funding.
All commercial paper is repayable within one year and is issued in a number of different currencies, primarily sterling,
euros and US dollars. Its fair value is considered to be the same as its carrying value.
(iv) Bank loans
Bank loans comprise:
2009 2008 2007
£m £m £m
Non-recourse
Loans to property partnerships (see (a) below) 790 978 485
Loans to Irish investment funds (see (b) below) 36 60 74
UK Life reassurance (see (c) below) 114 103 —
US 150 — —
Other non-recourse loans 169 44 16
1,259 1,185 575
Banking loans 145 184 103
Other loans (see (d) below) 778 522 386
2,182 1,891 1,064
(a) As explained in accounting policy D, 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 £790 million
(2008: £978 million, 2007: £485 million) included in the table relate to those PLPs which have been consolidated
as subsidiaries.
(b) Certain Irish policyholder investment funds and unit trusts, which have been fully consolidated in accordance with accounting
policy D, have raised borrowings with external credit institutions. The borrowings are secured on the funds, with the only recourse
on default being the underlying investments in these funds and unit trusts. The lenders have no recourse whatsoever to the
shareholders’ funds of any companies in the Aviva Group. These loans run for a period of five years, with interest rates fixed
monthly and based on a fixed margin above the euro inter-bank rate. The amount of these loans can be varied without any
penalty being charged, subject to a maximum of 50% Loan to Value and a maximum facility of €40 million.
(c) The UK long-term business entered into a financial reassurance agreement with Swiss Re in 2008, under which up-front
payments are received from Swiss Re in return for 90% of future surplus arising. The loan will be repaid as profits emerge
on the business.
(d) Other loans includes €500 million 10.44% subordinated notes due 2019 of which €400 million of the loan was issued by
Delta Lloyd Levensverzekering and €100m by Delta Lloyd Schadeverzekering