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New Impala Bond Offering:
Scottish Widows plc
September 2013
Agenda
pg 2
▪ 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
I. Relative performance – existing Impala FRNs vs. short duration fixed income alternatives
II. RPI linked bond comparisons
III. Investec credentials
▪ Contact details
Bonds converted to Impala Floating Rate Notes
pg 3
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 2nd 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
Performance of the existing Impala bonds: LSE and Barclays FRNs
pg 4
Impala LSE FRN price performance vs fixed rate bond
Impala Barclays FRN price performance vs fixed rate bond
In a rising interest rate
environment Impala
FRNs have outperformed
underlying fixed rate
bonds...
and most alternative fixed
income investments
1.60
1.80
2.00
2.20
2.40
2.60
2.80
100
102
104
106
108
110
112
Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13
9 y
ear
inte
rest
rat
e s
wap
( %
)
Bo
nd
pri
ce (
£)
LSE 4.75% 2021 (LH) Impala LSE FRN (LH) 9 year interest rate swap (RH)
0.90
1.10
1.30
1.50
1.70
1.90
92
94
96
98
100
102
104
106
Apr-13 May-13 May-13 Jun-13 Jun-13 Jul-13 Jul-13 Aug-13 Aug-13 Aug-13
6 ye
ar in
tere
st ra
te s
wap
(%
)
Bond
pri
ce (£
)
BACR 14% 2019/Perp (LH) Impala BACR FRN (LH) 6 year interest rate swap (RH)
Overview: Scottish Widows plc
pg 5
▪ 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
▪ 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+
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
Source: Investor presentation, April 2013
Scottish Widows 5.5% 2023
pg 6
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 BBB+ / BBB+ / Baa2
Issue size £850m
Denominations £100,000 / £1,000
Regulatory par call Applicable
Principal and interest
deferral option 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).
Investment Option 1 - Impala Scottish Widows RPI linked bond
pg 7
RPI linker Impala bond secured by Scottish Widows: 1.90% RPI linked 2023
Issuer Investec Bank plc
ISIN / SEDOL XS0963352025 / BDC7QD4
Format Senior Secured, Dated, Unsubordinated
Security (Credit) Scottish Widows 5.5% 2023 Subordinated
Security Rating 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 London Stock Exchange
Pricing Bloomberg and SEAQ (London Stock Exchange)
Settlement Euroclear
Close Date 18 September 2013
Issue date 23 September 2013
Source: Bloomberg, Investec
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 8
Investment Option 2 - Impala Scottish Widows Floating Rate Note
pg 9
FRN Impala bond secured by Scottish Widows: 3mL + 2.90% 2023
Issuer Investec Bank plc
ISIN XS0963352884
Format Senior Secured, Undated, Unsubordinated
Security (Credit) Scottish Widows 5.5% 2023 Subordinated
Security Rating 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 London Stock Exchange
Pricing Bloomberg and SEAQ (London Stock Exchange)
Settlement Euroclear
Close date 18 September 2013
Issue date 23 September 2013
Source: Bloomberg, Investec
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 10
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.
To view the price of the Floating Rate Notes and RPI linked bonds on Bloomberg, use IVSS as the pricing source.
pg 11
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
Source: Bloomberg
Appendices
I. Relative performance – existing Impala FRNs vs. short duration fixed income
alternatives
II. RPI linked bond comparisons
III. Investec credentials
pg 12
1.60
1.80
2.00
2.20
2.40
2.60
2.80
3.00
93
94
95
96
97
98
99
100
101
102
103
104
105
24 Apr 13 08 May 13 22 May 13 05 Jun 13 19 Jun 13 03 Jul 13 17 Jul 13 31 Jul 13 14 Aug 13
10
ye
ar s
wap
rat
e(
%)
Pri
ce
Impala Barclays FRN (LHS)
Impala LSE FRN (LHS)
iShares Euro Corporate Bond Short Duration/ Interest Rate Hedged (LHS)
M&G Strategic Corporate Bond Fund (LHS)
Neuberger Berman Floating Rate Income Fund (LHS)
3mL 10 years swap (RHS)
I. Relative performance – FRNs vs short duration fixed income alternatives
pg 13
Source: Bloomberg, 23 August 2013
Capital return since April 2013
pg 14
Period: 24 April – 23 Aug 2013 Capital Return Yield Total Return
Impala Barclays FRN 3.05% 1.80% 4.85%
Impala LSE FRN 3.89% 1.03% 4.93%
iShares Euro Corporate Bond Short Duration/ -0.46% 0.43% -0.03%
M&G Strategic Corporate Bond Fund -2.76% 0.83% -1.93%
Neuberger Berman Floating Rate Income Fund -1.06% 1.47% 0.41%
I. Relative performance – Total Return
Source: Bloomberg, Investec 23 August 2013
Impala FRNs have outperformed short duration fixed income funds & ETFs, both on a capital and total return
basis
II. RPI linker comparisons
pg 15
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 BBB 181 1.47% £250m £1k / 1k
Scottish Power 3.49%
13/10/2024 BBB 175 1.62% £175m £1k / 1k
Places for People 1%
31/1/2022 A2 111 0.21% £40m £2k / 100
National Grid 1.25%
06/10/2021 BBB+ 114 0.40% £282m £2k / 100
Tesco Bank 1%
16/12/2019 unrated 109 0.38% £60m £2k / 100
Severn Trent 1.3%
11/07/2022 BBB- 111 0.46% £75m £2k / 1k
The Comps universe is composed of bonds with the following characteristics:
UK issuer, currency GBP, Maturity: 7-15 years, Investment grade, bullet
Source: Bloomberg, Investec, 13 September 2013
pg 16
Publicly available listed bonds
£35m
7.0% 7 years
Senior Retail Bond
Sole Bookrunner &
Distributor
£282.5m
1.25% RPI linked
10 years
Senior Retail Bond
Joint Bookrunner &
Distributor
£57.5m
6.0% 7 years
Senior Retail Bond
Joint Bookrunner &
Distributor
£80m
6.25% 7 years
Senior Retail Bond
Joint Bookrunner &
Distributor
Senior Retail Bond
Joint Bookrunner &
Distributor
£75m
1.30% RPI linked
10 years
£50m
7.5% 5 ½ years
Senior Retail Bond
Sole Bookrunner &
Distributor
Senior Retail Bond
Sole Bookrunner &
Distributor
£40m
1.0% RPI linked
10 years
£125m
5.2% 7 ½ years
Senior Retail Bond
Joint Bookrunner &
Distributor
Senior Retail Bond
Joint Bookrunner &
Distributor
£60m
1.0% RPI linked
8 years
5.0% 8 ½ years
Joint Bookrunner &
Distributor
£200m
Senior Retail Bond
£120m
7.0% 5 ½ years
Senior Retail Bond
Joint Bookrunner &
Distributor
£140m
5.0% 5 ½
years Senior Retail Bond
Sole Bookrunner &
Distributor
£90m
6.125% 7 ½ years
Senior Retail Bond
Joint Bookrunner &
Distributor
£50m
6.0% 7 years
Senior secured Retail
Bond Sole Bookrunner &
Distributor
£150m
10.5% 7NC3 years
B2/B
Senior Secured High
Yield
Joint Bookrunner
£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
Contact details
Harris Gorre, CFA
Capital Markets
Direct: +44 (0) 20 7597 3892
Blackberry: +44 (0) 777 137 5080
Manoelle Lefevre
Capital Markets
Direct: +44 (0)20 7597 5726
Blackberry +44 (0) 786 739 4087
pg 17
2 Gresham Street, London, EC2V 7QP
United Kingdom
www.investec.co.uk/impala
Neil Raja
Capital Markets
Direct: +44 (0) 20 7597 3813
Blackberry: +44 (0) 758 530 2147
Lisa Martinez
Capital Markets
Direct: +44 (0) 20 7597 3776
Dick Warburton
Capital Markets - Sales
Direct: +44 (0) 20 7597 5758
Blackberry: +44 (0) 793 263 2262
Neil Baldwin
Capital Markets - Sales
Direct: +44 (0) 20 7597 5753
Blackberry: +44 (0) 779 695 4222
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pg 18