Rothesay Life raises £700m in debut bond issue

Rothesay Life raised £700m of subordinated capital in 2017 through its debut bond issue and a follow‑on private placement, reshaping its liability structure as new business volumes grew. The transactions sat alongside bank debt repayment and rising equity release exposure, against a year‑end solvency coverage ratio of 163%.

The year was marked by a shift from bank funding to longer‑dated subordinated instruments, as Rothesay Group repaid a £240m three‑year term loan facility provided by a syndicate of third‑party banks on 16 May. The repayment removed short‑term bank leverage from the structure and preceded the subordinated issuance activity.

Capital structure and subordinated issuance

Rothesay Life issued £300m of floating rate subordinated loan notes on 19 September, maturing in 2028 and paying interest at LIBOR plus 595 basis points. The notes formed the core of the firm’s debut bond financing and sat within the subordinated layer of its capital stack.

The £300m subordinated loan notes carry a fixed coupon of 6.05% and are first callable at par on 19 September 2023, creating a six‑year first call and an 11‑year final maturity profile. The structure introduced a defined call date into Rothesay Life’s capital structure, with the potential for refinancing or extension beyond that point. The perpetual format added an undated layer of subordinated capital, distinct from the dated 2028 notes.

The £100m perpetual subordinated notes were issued to replace existing debt on Rothesay Life’s balance sheet. This substitution shifted part of the firm’s leverage from prior instruments into the new perpetual structure held by MassMutual.

Business growth and asset allocation

Rothesay Life reported that it assisted seven pension schemes and insurers to de‑risk their liabilities in 2017, generating new business premiums of £1.2bn. The premium flow added to the scale of the back‑book and increased the volume of liabilities to be backed by its investment portfolio.

Within that portfolio, the group increased its funding for equity release mortgages, with the value of such loans reaching £529m by the end of the year. The growth in equity release exposure reflected a higher allocation to this illiquid asset class on the balance sheet.

Ownership and governance context

Goldman Sachs sold down its remaining stake in Rothesay on 18 December, transferring full ownership to the firm’s other shareholders. The exit removed the bank from the shareholder register and completed the transition to a new ownership base.

Addy Loudiadis is CEO of Rothesay Life, leading the business through the period of capital restructuring, new issuance and ownership change. On the investor side of the perpetual notes, M. Timothy Corbett serves as Executive Vice President and Chief Investment Officer at MassMutual.

Solvency position

Rothesay Life reported a solvency coverage ratio of 163% at 31 December, following the year’s issuance, debt repayment and balance sheet growth. The ratio captured the combined effect of new subordinated capital, asset allocation shifts and business volumes on the firm’s regulatory capital position.

The next structural decision points sit around the first call date on the £300m subordinated loan notes in September 2023 and any future adjustments to the mix of perpetual and dated subordinated capital.

--- Sources: https://www.rothesay.com https://www.rothesay.com/media/au3kyrqw/rothesay-life-2017-annual-report-and-accounts.pdf https://www.rothesay.com/about-us/financials/bondholder-information/