08b/08 - クラブ回覧08/08「ハイブリッド資本」についてのQ&A
Q1: What is hybrid capital?
A: Hybrid capital is capital that is structured as debt, but has equity-like features. The equity-like features are designed to absorb losses. It is also subordinated on a winding-up to all other creditors, but ranks ahead of the Members' entitlement to the surplus remaining after all Members' claims have been paid (see also Q17). As a result the cost of hybrid capital is closer to the cost of equity than the cost of debt.
Q2: Why consider hybrid capital?
A: Hybrid capital is a very efficient way of increasing the Club's solvency position without making a Call on the Members. It also would allow the Club greater flexibility in its investment strategy allowing an increase to its exposure to equities and hedge fund investments when considered appropriate, even in the light of the more stringent solvency requirements expected to be imposed under Solvency II.
Q3: Have other insurance companies used hybrid capital?
A: Yes, many leading insurance companies have issued hybrid capital for the same reasons. For example, many European insurance companies have 20 to 30% of their capital base in the form of hybrid capital.
Q4: Has a P&I Club issued hybrid capital?
A: No, not yet.
Q5: What advantages does hybrid capital have over reinsurance?
A: Hybrid capital is an additional means of improving solvency and does not exclude the use of reinsurance to recover losses. In addition, an investment return is generated on the capital raised, thus reducing the net annual cost of the hybrid capital.
Q6: What type of hybrid capital meets the Club's requirements?
A: The Club is regulated by the FSA. The FSA in its Rulebook describes various "tiers" of capital. The hybrid capital that meets the Club's requirements is the so called Innovative Tier 1 ("IT1") capital. In order to classify as IT1, the capital needs to be perpetual and any interest payments deferrable at the Club's option, under certain circumstances.
Q7: How much hybrid capital will be issued by the Club?
A: The Club is seeking around $100m.
Q8: Is the interest rate fixed or floating?
A: The interest rate is fixed during the first 5 years of the issue and floating thereafter. After the 5th anniversary of the issue the rate becomes a floating rate with a pre-determined spread and at the 10th anniversary a step-up of 1% will be added to this pre-determined spread.
Q9: Which investors would buy hybrid capital issued by the Club?
A: Large pension funds and life insurance companies are the traditional buyers of hybrid capital. However, given conditions in the credit market such investors currently have a plethora of choice of issues and are therefore reluctant to do the analysis required to gain an understanding of the Club. By contrast, the Members already have a good understanding of the Club and its particular credit characteristics and may wish to consider such an investment.
Q10: Did those Members who provided a commitment to the Club as part of the pre-marketing process receive a
A: Yes, Members who provided a commitment will receive a commission of 0.25% of the amount committed.
Q11: What advisor is the Club using?
A: The Club appointed UBS as lead manager, bookrunner and structuring advisor.
Q12: What is the role of UBS?
A: UBS is an agent of the Club and functions as an intermediary between the Club and the investors. It has also advised the Club on the structure and terms of the hybrid capital.
Q13: Why does the issue have a "BBB+" rating when the Club has an "A" rating from Standard & Poor's?
The Club has an "A" claims paying rating. As claims rank ahead of the hybrid capital holders the implied credit rating of the hybrid capital is assumed to be two notches below the Club's claims paying ability rating.
Q14: What are the key terms of the debt?
In order to qualify as IT1 capital for regulatory purposes, the debt must be perpetual (i.e. have no fixed redemption date) and on a winding up, be subordinated to all other creditors, including Members' claims. On winding-up, it ranks ahead only of the Members' entitlement to distribution of a surplus. In addition, the Club must have the right to defer interest payments in certain circumstances which are defined in the terms and conditions of the hybrid capital detailed in the prospectus. The terms and conditions provide for a non-call period of 5 years during which the debt cannot be repaid but thereafter it is repayable (in full only) at the option of the Club. If not repaid after ten years, there is an automatic increase
(step-up) in the coupon.
Q15: In the context of the terms and conditions of the hybrid capital, does the Board have to make a supplementary call:
(a) to ensure repayment of the debt
(b) to pay the interest?
A: (a) No, the debt is undated and does not have to be repaid.
(b) No, interest can be deferred in the circumstances referred to in the terms and conditions of the hybrid capital.
Q16: Why is it more expensive than ship financing/Member company debt?
A: On a winding up it is subordinated to all other creditors and interest can be deferred if certain conditions are satisfied. This interest deferral is available as long as the debt is outstanding. In other words, this loss absorption potential provides equity-like features. This is reflected in the cost of hybrid capital.
Q17: Will the debt be listed on an exchange?
A: Yes, it will be listed on the London Stock Exchange.
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