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Phoenix Group to seek investment-grade credit rating after sale of Ignis

August 22, 2014

Simon Bain; Simon Bain

Phoenix Group, the owner of closed life funds such as Scottish Mutual and Scottish Provident, has said its sale of Glasgow-based Ignis Asset Management to Standard Life Investments will pave the way for cheaper debt.

But the former Pearl Group disappointed investors by holding its dividend, despite almost halving debt from pound(s)2.3billion last year to pound(s)1.2bn following the pound(s)390m disposal of Ignis, which completed on July 1.

SLI has given no guarantees about the future of the 240 staff in Glasgow, and made it clear that its operations will continue to be centred on Edinburgh and London.

Phoenix, whose business model involves buying life insurance funds that are closed to new customers and running them more efficiently, said it would seek an investment-grade credit rating as it had simplified its debt structure and achieved a 43 percent jump in operating profit.

It said a credit rating issued by rating agencies Standard and Poor's, Fitch and Moody's - would help Phoenix reduce the cost of its senior debt by about 50 basis points (0.5 per cent), get longer maturities, and access to a wider group of investors.

Finance director Jim McConville said: "We will start the engagement with the agencies between now and the turn of the year. We expect, hopefully, to complete the process in the first half of next year."

Heavy debt had forced Phoenix into a financial restructuring and a two-year absence from the fund buyout market until early 2013, when it renegotiated repayment of its pound(s)2.3bn debt.

Phoenix agreed the sale of Ignis in March, saying it would enable it to pay down another pound(s)250m of debt and focus on its core business.

Since the sale, a bond issue, and a restructuring of loans last month, Phoenix's senior debt has been slimmed to pound(s)1.2 bn from pound(s)1.7 bn at the start of the year.

The business was unveiling half-year results which showed operating profit up 43 per cent to pound(s)266m in the six months ended June 30, from pound(s)186m a year earlier.

Phoenix said that included pound(s)114m from "management actions", an increase from pound(s)24m on that basis a year ago

Analysts at Berenberg said in a note: "In our view, the dividend discussion is somewhat of a zero-sum game - management could clearly pay out more, but would then need to raise more from shareholders for future M&A."

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Source: Herald, The (Scotland)

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