AEGON has fully repaid the EUR 3 billion of core capital that the company obtained from the Dutch State at the height of the financial crisis in 2008.
History of the transaction
On December 1, 2008, AEGON secured EUR 3 billion of additional core capital from the Dutch State. The capital contribution was part of the Dutch government’s support program for financially sound and viable banks and insurance companies in connection with the worldwide financial crisis.
The EUR 3 billion capital contribution significantly strengthened AEGON’s financial position and ensured the company maintained a sound capital buffer against possible further declines in world credit and equity markets. The European Commission approved the capital contribution in 2010.
Over the course of nineteen months, from November 2009 to June 2011, AEGON gradually repaid the entire EUR 3 billion.
Structure of the transaction
The transaction was structured in such a way that it did strengthen AEGON’s capital position and secured the company's AA-rating. The new core capital was made available through the company’s major shareholder, Vereniging AEGON, which enabled Vereniging AEGON to purchase core capital securities from the company at a corresponding amount and terms and conditions similar to the loan.
AEGON issued 750 million convertible core capital securities ("CCC-securities") at EUR 4.00 per security to Vereniging AEGON. The CCC-securities rank equal to common shares (pari passu), but carry no voting rights. As a result, there was no dilution of existing shares.
The coupon of 8.5% on the CCC-securities was conditional upon the payment of dividends (cash or stock) on the AEGON common shares. For the first year the coupon was fixed at 8.5% (=EUR 0.34 per security). For consecutive years the coupon would be the higher of (i) 8.5% and (ii) an amount linked to the cash dividend paid on the common shares in the preceding year: in the second year 110% of the dividend paid per share, rising to 120% in the third year, 125% in the fourth and subsequent years.
Financial details concerning repayment
The original terms of repayment included interest and premium charges on the core capital advanced by the Dutch State. The total interest and premium paid by AEGON amounted to EUR 1.1. billion.
AEGON's repayment was accomplished progressively:
- November 30, 2009: EUR 1 billion in core capital, plus premium of EUR 108 million;
- August 30, 2010: EUR 500 million in core capital, plus premium of EUR 52 million;
- March 15, 2011: EUR 750 million in core capital, plus premium of EUR 375 million;
- June 15, 2011: EUR 750 million in core capital, plus premium of EUR 375 million.
As regards repurchase of the CCC-securities and subsequent repayment of the loan the following arrangements were made: until December 1, 2009 AEGON could repurchase up to 250 million of the securities at nominal value plus accrued interest and a repurchase compensation dependent on the repurchase date and AEGON’s actual share price but maximized at EUR 130 million. This, in effect, gave AEGON the right to repay EUR 1 billion of the loan in the first year in the event that financial market conditions improved sufficiently.
After the first year the securities could be repurchased at any time at 150% (=EUR 6.00 per security) plus accrued interest. Alternatively, after three years, AEGON could have chosen to convert all or some of the securities into common shares on a one-for-one basis, subject to adjustment of the conversion price under certain circumstances. If AEGON exercised its conversion right however, the Dutch State could have opted to receive repayment in cash at the original issue price of EUR 4.00 per security plus accrued interest.
Governance
The additional core capital was to be used solely for general corporate purposes in the ordinary course of business. Investments chargeable to the additional capital in excess of EUR 300 million outside the European Union required prior approval.
The support transaction did not affect AEGON’s ownership structure. Vereniging AEGON remained AEGON’s major shareholder. The Dutch State had no voting rights at the General Meeting of Shareholders as a result of the transaction.
As part of the transaction, the Dutch State was entitled to nominate two representatives to AEGON’s Supervisory Board and its committees for as long as less than 75% of the loan facility was redeemed. To this end Ms. Karla Peijs and Mr. Arthur Docters van Leeuwen were nominated for appointment by the April 22, 2009 AGM. Ms. Peijs was already a member of the Supervisory Board, as well as a member of the Compensation and Nominating Committees. Mr.Docters van Leeuwen, formerly head of the Dutch financial markets regulator AFM, became a member of AEGON’s Audit Committee.
Approval from the State representatives was required for certain decisions, including the issuance/acquisition of shares and debentures, changes to AEGON’s executive remuneration policy and any acquisitions or divestments with a value of 25% or more of AEGON’s issued capital and reserves.
It was further agreed that AEGON would review its remuneration policy for the Executive Board and senior management to ensure that it is aligned to new international standards.