Fitch rates Rothesay’s £500m Tier 2 notes BBB+

Fitch Ratings has assigned a ‘BBB+’ rating to £500m of subordinated Tier 2 notes issued by Rothesay Life Plc, the insurance operating company of Rothesay Limited. Rothesay issued the notes under its £3bn euro medium-term note programme; they carry a fixed coupon and a 10.5-year maturity, with a first call date in September 2036. The proceeds are being used for general corporate purposes.

The Tier 2 notes are notched down twice from Rothesay’s Issuer Default Rating, comprising one notch for a ‘below average’ recovery assumption and one for ‘moderate’ non-performance risk. In a winding-up the notes will rank ahead of ordinary shares and Solvency II Restricted Tier 1 subordinated debt, but behind senior creditors including holders of Tier 3 notes.

The notes carry a mandatory interest deferral feature, triggered if any solvency capital requirement applicable to Rothesay is not met. The notes are expected to qualify for 100% regulatory capital recognition under Solvency II, and on that basis would receive 100% equity credit in Fitch’s Prism Global capital model through the agency’s regulatory override, although as a dated instrument they are treated as 100% debt in the financial debt leverage calculation. The issue will increase Rothesay’s leverage and reduce fixed-charge coverage, and Fitch expects both measures to remain commensurate with the company’s ratings. Fitch has rated the wider programme BBB+ for Tier 2 notes and A- for Tier 3 notes, while Moody’s rates both tiers Baa1.