New Impala Bond Offering: Scottish Widows plc September 2013
pg 2 Agenda Performance of the existing Impala bonds: LSE 4.75% and Barclays 14% Floating Rate Notes Brief overview of Scottish Widows plc business and credit Introduction to the 850m Scottish Widows 5.5% 2023 bond New launch opportunity to invest 1. Impala Scottish Widows RPI linked bond Bond terms Summary of the investment opportunity 2. Impala Scottish Widows Floating Rate Note Bond terms Summary of the investment opportunity Liquidity in the secondary market Appendices Contact details I. RPI linked bond comparisons II. Investec credentials
pg 3 Bonds converted to Impala Floating Rate Notes FRN Secured by LSE 4.75% 2021* FRN Secured by Barclays 14% 2049* Issuer Investec Bank plc Investec Bank plc Format Secured Secured Security LSE 4.75% 2021 Senior Unsecured BACR 14% 2019 Perpetual Jr. Subordinated Security Rating Baa2 / A- Ba1 / BBB- ISIN GB00B8CQ6M56 XS0894194769 Maturity Date 2 nd November 2021 Perpetual with Issuer call option on 15 June 2019 Issue Price 100.00 100.00 Coupon 3 Month GBP Libor + 2.73% 3 Month GBP Libor + 4.90% to 15 June 2019, then 3 Month GBP Libor + 13.00% thereafter Coupon Frequency Quarterly Quarterly Denomination 1k plus increments of 1k thereafter 100k plus increments of 1k thereafter Listing London Stock Exchange London Stock Exchange Settlement Euroclear Euroclear Pricing Bloomberg & London Stock Exchange Bloomberg & London Stock Exchange Current price (Bid / Offer) 107.93 / 109.02 102.71 / 103.60
pg 4 Performance of the existing Impala bonds: LSE and Barclays FRNs 112 Impala LSE FRN price performance vs fixed rate bond 2.80 110 2.60 Bond price ( ) 108 2.40 106 2.20 104 2.00 102 1.80 100 1.60 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 LSE 4.75% 2021 (LH) Impala LSE FRN (LH) 9 year interest rate swap (RH) 106 Impala Barclays FRN price performance vsfixed rate bond 1.90 104 9 year interest rate swap ( %) In a rising interest rate environment Impala FRNs have outperformed underlying fixed rate bonds... and most alternative fixed income investments Bond price ( ) 102 100 98 96 94 1.70 1.50 1.30 1.10 6 year interest rate swap (%) 92 Apr-13 May-13 May-13 Jun-13 Jun-13 Jul-13 Jul-13 Aug-13 Aug-13 Aug-13 BACR 14% 2019/Perp (LH) Impala BACR FRN (LH) 6 year interest rate swap (RH) 0.90
pg 5 Overview: Scottish Widows plc A leading UK Life & Savings company Very strong brand with a track record stretching back to 1814 A wholly owned, indirectly-held subsidiary of Lloyds TSB Bank Plc, benefitting from distribution and cost synergies Diversified distribution: Lloyds client base, IFA s and direct Diversified product mix: Corporate pension, Annuities, Protection, Individual pension, Savings & Investments Leading Market position Broad multichannel distribution Strong balance sheet - Premium income of 6.7bn - 8 million policyholders - #4 UK Life & Savings provider - Unique bancassurance proposition accessing 30m customers (31%) - Strong IFA channel (63%) - Growing direct channel (6%) - 3.9bn regulatory capital surplus (184% coverage ratio) - 119bn managed assets - High quality credit portfolio - Total Capital of 8.5bn ( 6.3bn equity and 1.2bn Lower Tier 2) versus Capital required of 4.6bn High quality assets with 96% of the portfolio rated above BBB- with an average credit rating of A or higher Assets backing annuities are matched to the projected liability cash flows Scottish Widows financial leverage at the end of 2011 at 22% is significantly below the peer average (Old Mutual at 28% and Legal & General at 27%) Rating type Entity S&P Moody s Fitch Financial strength Scottish Widows plc A (-) A A Tier 2 debt Scottish Widows plc BBB+ Baa2 BBB+ Source: Investor presentation, April 2013
pg 6 Scottish Widows 5.5% 2023 Background of the opportunity Investors like the credit risk and return offered by the Scottish Widows 5.5% 2023 bonds, but are worried about the expectations of rates rising over the tenor and/or inflation eroding their capital and income The Scottish Widows 5.5% 2023 fixed rate bond Issued in April 2013 to cancel the funding from its parent Lloyds, hence externalising internal funding. The book was 4.5x oversubscribed, reflecting strong investor demand. This has resulted in a low allocation of bonds for most investors and fair support in the secondary market. These bonds are unsecured subordinated Tier 2, not Coco s (contingent convertible) and have no specific capital ratio trigger event. Scottish Widows have the option to call the bond at par or vary the terms of the notes if, due to changes in regulation, the bonds don t qualify as Dated Tier 2 Securities anymore. Deferral of the coupon payment and redemption, subject to Solvency 2 Capital Requirements. Scottish Widows have no senior unsecured bonds in the market. The only other bond in issuance is a single junior subordinated bond which sits below the Scottish Widows 5.5% 2023 Fixed Rate Bond Scottish Widows 5.5% 2023 Coupon 5.5% annual payment Maturity date 16 June 2023 Format Subordinated, Tier 2 Credit rating Issue size 850m BBB+ / BBB+ / Baa2 Denominations 100,000 / 1,000 Regulatory par call Principal and interest deferral option Applicable Applicable Current price 96.92 Current YTM 5.92% Investec new offering Investec is issuing an RPI linked note and a floating rate note secured by the Scottish Widows fixed rate bond. This bond offers investors the opportunity to buy a new bond in 1,000 denominations at par, RPI index linked and/or floating rate with exposure to the Scottish Widows 5.5% 2023 bond (sole credit risk). The Impala bond benefits from the same liquidity as the fixed rate bond, is listed on the LSE, quoted intra-day and priced on Bloomberg and SEAQ (LSE).
pg 7 Investment Option 1 - Impala Scottish Widows RPI linked bond RPI linker Impala bond secured by Scottish Widows: 1.90% RPI linked 2023 Issuer ISIN / SEDOL Format Security (Credit) Security Rating Investec Bank plc XS0963352025 / BDC7QD4 Senior Secured, Dated, Unsubordinated Scottish Widows 5.5% 2023 Subordinated BBB+ / BBB+ / Baa2 Maturity 16 June 2023 Coupon 1.90% real interest rate paid annually, with notional RPI adjusted Issue Price 100.00 Denomination 1,000 plus increments of 100 (minimum subscription 1,000) Listing / Trading Pricing Settlement London Stock Exchange Bloomberg and SEAQ (London Stock Exchange) Euroclear Close Date 18 September 2013 Issue date 23 September 2013 Source: Bloomberg, Investec
pg 8 Summary of the investment opportunity: RPI linked bond Investec has launched an Impala Scottish Widows RPI linked bond with the following characteristics: Investment grade (security rating): BBB+ 9.81 years tenor (16 June 2023) Coupon: 1.90% real coupon (adjusted by RPI) with notional adjusted for inflation Credit risk: Scottish Widows unsecured subordinated Tier 2 bond Redemption value floored at par As liquid as the underlying fixed rate bond: 850m Scottish Widows 5.5% 2023 In minimum denominations of 1,000 + increments of 100 Listed on the London Stock Exchange Quoted intra-day on SEAQ (LSE platform) and Bloomberg
pg 9 Investment Option 2 - Impala Scottish Widows Floating Rate Note FRN Impala bond secured by Scottish Widows: 3mL + 2.90% 2023 Issuer ISIN Format Security (Credit) Security Rating Investec Bank plc XS0963352884 Senior Secured, Undated, Unsubordinated Scottish Widows 5.5% 2023 Subordinated BBB+ / BBB+ / Baa2 Maturity 16 June 2023 Coupon 3 Month Libor + 2.90% Issue Price 100.00 Denomination 1,000 plus increments of 100 (minimum subscription 1,000) Listing / Trading Pricing Settlement London Stock Exchange Bloomberg and SEAQ (London Stock Exchange) Euroclear Close date 18 September 2013 Issue date 23 September 2013 Source: Bloomberg, Investec
pg 10 Summary of the investment opportunity: Floating Rate Note Investec has launched an Impala Scottish Widows FRN with the following characteristics: Investment grade (security rating): BBB+ 9.81 years tenor (16 June 2023) Coupon: 3 month Libor + 2.90% Credit risk: Scottish Widows unsecured subordinated Tier 2 bond As liquid as the underlying fixed rate bond: 850m Scottish Widows 5.5% 2023 In minimum denominations of 1,000 + increments of 100 Listed on the London Stock Exchange Quoted intra-day on SEAQ (LSE platform) and Bloomberg
pg 11 Liquidity in the secondary market As Investec hold the Scottish Widows bonds, the liquidity of the RPI linked bond and Floating Rate Note is driven by the underlying Scottish Widows bonds. The liquidity of the Floating Rate Note and RPI linked bond therefore benefits from the 850m underlying issuance. The table below shows a summarised selection of market makers in Scottish Widows 5.5% 2023 together with their prices on Bloomberg dated 27 August 2013 at 16:16. Market Makers Bid Ask Price B size A size ( 1000) Time BNP Paribas 96.07 / 96.53 1000 x 1000 16:16 Barclays 96.11 / 96.92 1000 x 1000 16:16 HSBC 96.23 / 97.01 1000 x 1000 16:16 To view the price of the Floating Rate Notes and RPI linked bonds on Bloomberg, use IVSS as the pricing source. Source: Bloomberg
pg 12 Appendices I. RPI linked bond comparisons II. Investec credentials
pg 13 I. RPI linker comparisons The Comps universe is composed of bonds with the following characteristics: UK issuer, currency GBP, Maturity: 7-15 years, Investment grade, bullet Security Rating Price Real Yield Size Denomination Impala Scottish Widows 2023 BBB+ (Security) 100 1.90% Liquidity of 850m Fixed rate bond 1k / 100 Britel 3.5% 25/04/2025 Scottish Power 3.49% 13/10/2024 Places for People 1% 31/1/2022 National Grid 1.25% 06/10/2021 Tesco Bank 1% 16/12/2019 Severn Trent 1.3% 11/07/2022 BBB 181 1.47% 250m 1k / 1k BBB 175 1.62% 175m 1k / 1k A2 111 0.21% 40m 2k / 100 BBB+ 114 0.40% 282m 2k / 100 unrated 109 0.38% 60m 2k / 100 BBB- 111 0.46% 75m 2k / 1k Source: Bloomberg, Investec, 13 September 2013
pg 14 II. Listed bonds 5.5m FRN: 3m Libor + 2.73% 2021 Security: LSE plc 4.75% 2021 A- / Baa2 Senior Secured Note Sole Bookrunner 20m FRN: 3m Libor + 4.90% Security: Barclays plc 14% Ba1/ BBB- Senior Secured Note Sole Bookrunner 15m FRN: 3m Libor + 2.90% 2023 Security: Scottish Widows plc 5.5% 2023 BBB+ / Baa2 Senior Secured Note Sole Bookrunner 5m RPI linker: 1.90% real coupon, notional RPI adj. Security: Scottish Widows plc 5.5% 2023 BBB+ / Baa2 Senior Secured Note Sole Bookrunner 150m 10.5% 7NC3 years B2/B Senior Secured High Yield Joint Bookrunner 50m 6.0% 7 years Senior secured Retail Bond Sole Bookrunner & 90m 6.125% 7 ½ years 80m 6.25% 7 years 57.5m 6.0% 7 years 75m 1.30% RPI linked 10 years 200m 5.0% 8 ½ years 120m 7.0% 5 ½ years 40m 1.0% RPI linked 10 years Sole Bookrunner & 140m 5.0% 5 ½ years Sole Bookrunner & 125m 5.2% 7 ½ years 50m 7.5% 5 ½ years Sole Bookrunner & 35m 7.0% 7 years Sole Bookrunner & 282.5m 1.25% RPI linked 10 years 60m 1.0% RPI linked 8 years
pg 15 Contact details Harris Gorre, CFA Capital Markets Direct: +44 (0) 20 7597 3892 Blackberry: +44 (0) 777 137 5080 harris.gorre@investec.co.uk Neil Raja Capital Markets Direct: +44 (0) 20 7597 3813 Blackberry: +44 (0) 758 530 2147 neil.raja@investec.co.uk Dick Warburton Capital Markets - Sales Direct: +44 (0) 20 7597 5758 Blackberry: +44 (0) 793 263 2262 richard.warburton@investec.co.uk Manoelle Lefevre Capital Markets Direct: +44 (0)20 7597 5726 Blackberry +44 (0) 786 739 4087 manoelle.lefevre@investec.co.uk Lisa Martinez Capital Markets Direct: +44 (0) 20 7597 3776 lisa.martinez@investec.co.uk Neil Baldwin Capital Markets - Sales Direct: +44 (0) 20 7597 5753 Blackberry: +44 (0) 779 695 4222 neil.baldwin@investec.co.uk 2 Gresham Street, London, EC2V 7QP United Kingdom www.investec.co.uk/impala
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