Aegon announces consent solicitation to amend coupon calculation on USD Perpetual Capital Securities
April 04, 2023, 7:30 CEST
FOR DISTRIBUTION ONLY OUTSIDE THE UNITED STATES TO PERSONS OTHER THAN “U.S. PERSONS” (AS DEFINED IN REGULATION S UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”)). NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN OR INTO, OR TO ANY PERSON LOCATED OR RESIDENT IN, ANY OTHER JURISDICTION WHERE IT IS UNLAWFUL TO RELEASE, PUBLISH OR DISTRIBUTE THIS DOCUMENT.
Aegon N.V. (Aegon) announces the invitation to the eligible holders of its outstanding USD 500,000,000 Perpetual Capital Securities (ISIN: NL0000116168) (the Securities) to consent to the modification of the terms and conditions of the Securities. The terms of the Securities feature a coupon rate that is calculated using a LIBOR-referencing swap rate, which is expected to be discontinued from June 30, 2023. The Alternative Reference Rates Committee (ARRC) has issued a recommendation for the substitution of LIBOR-referencing swap rates with Secured Overnight Financing Rate (SOFR) -referencing swap rates. Aegon is proposing a simplified variation to the ARRC recommendation, which essentially comprises two elements. A substitution of the references to “USD CMS-10 year” (the 10-year USD LIBOR Ice Swap Rate (ISR) in the interest provisions of the Securities by “10-year SOFR ISR” and a fixed spread adjustment to compensate holders for certain differences between the two swap rates. In addition, updated fallback provisions will be included to cater for any future discontinuation of the SOFR ISR.
The consent solicitation is subject to the terms and conditions contained in the consent solicitation memorandum dated April 4, 2023. The consent solicitation memorandum and the full consent solicitation launch announcement are available from the solicitation agent and/or the tabulation agent as set out below.
Rationale for the consent solicitation
The Securities feature a quarterly floating rate coupon equal to the 10-year USD LIBOR ISR plus 0.1 per cent., subject to an 8.5 per cent. maximum. This LIBOR-referencing swap rate is widely expected to cease to be published by any administrator and/or will no longer be representative immediately after June 30, 2023 (cessation). The terms of the Securities do not provide for a fallback that can be used to determine the floating rate coupon post-cessation. To avoid a situation where no coupon rate can be established and no coupon can be paid, Aegon has chosen to launch a consent solicitation in order to amend the floating rate coupon calculation.
Details of the consent solicitation
The proposed changes are limited to the interest rate provisions within the terms of the Securities and are aimed at remediating the embedded LIBOR coupon and introducing updated fallback provisions. The ARRC has published recommendations in relation to the substitution of LIBOR-referencing swap rates. The ARRC recommendation advocates calculation of the replacement rate by application of a sophisticated formula based on SOFR-referencing swap rates with some technical adjustments to account for differences in payment frequency and day count conventions, with a variable spread adjustment. Aegon is proposing to apply a simplified approach using the ARRC formula, which would result in a fixed spread adjustment rather than a variable spread adjustment per quarter. This simplified approach derives the spread adjustment for moving from a 10-year LIBOR-referencing swap rate to a 10-year SOFR-referencing swap rate as of March 31, 2023.
The proposed methodology is considered by Aegon as appropriate to achieve an economically neutral outcome, considering various factors including, but not limited to, general industry and market feedback for the active transition of USD LIBOR-referencing securities. Aegon has considered exercising the call option available in the terms of the Securities but has concluded that this would not be in the economic interest of the company.
Spread adjustment and new floating rate coupon
Based on the 10-year SOFR -referencing swap rate of 3.242 per cent. on March 31, 2023, the proposed spread adjustment is 0.28753 per cent. In the opinion of Aegon, the proposed approach should provide a beneficial outcome for holders of the Securities compared to applying the specific formula recommended by the ARRC. The ARRC approach would lead to a variable spread depending on the 10-year SOFR -referencing swap rate, with a maximum spread adjustment of 0.28767 per cent. for a swap rate of 3.01 per cent.
The simplified approach to calculate the spread adjustment effectively fixes the spread adjustment close to the maximum spread under the ARRC approach. In case the eligible holders consent to the proposed modifications, the Securities will have a quarterly floating rate coupon equal to the 10-year SOFR ISR plus 0.38753 per cent (the sum of the original credit spread and the spread adjustment), subject to an 8.5 per cent maximum.
Indicative timetable for the consent solicitation
The consent solicitation commences today and the final deadline for receipt by the tabulation agent of consent instructions and voting forms is 10.00 a.m. CET on April 19, 2023. This will also be the deadline for making any other arrangements to attend or be represented or to vote at the consent solicitation meeting. The meeting will commence at 10.00 a.m. (CET) on April 21, 2023 at the offices of Allen & Overy LLP, Apollolaan 15, 1077 AB Amsterdam, the Netherlands.
The results of the meeting will be announced as soon as reasonably practicable after the meeting. If the necessary quorum, based on eligible holders only, for the meeting is not obtained the meeting will be adjourned and a new meeting will be announced in due course. In case holders of the Securities would not consent to the modification of the terms and conditions of the Securities, Aegon will consider other options to amend the coupon calculation.
HSBC Continental Europe (Telephone: +44 20 7992 6237; Attention: Liability Management, DCM; Email: LM_EMEA@hsbc.com) is acting as the solicitation agent and Kroll Issuer Services Limited (Telephone: +44 207 704 0880; Attention: Paul Kamminga / Arlind Bytyqi; Email: firstname.lastname@example.org; Website: https://deals.is.kroll.com/aegon) is acting as tabulation agent.
Holders are advised the read carefully the consent solicitation memorandum for full details of and information on the consent solicitation. More information on the consent solicitation can also be found in the consent solicitation launch announcement published at https://deals.is.kroll.com/aegon.