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The deal that saw Phoenix Group Holdings snapping up Standard Life Assurance Ltd (SLAL) from Standard Life Aberdeen Plc (SLA) may have been described as “strategically and financially compelling,” but Moody’s Investors Service has other things in mind.
Following the completion of the mega insurance swoop, the rating agency – while affirming the issuer rating at A3 – downgraded SLA’s subordinated debt rating backed by SLAL to Baa1(hyb) from A3(hyb) and junior subordinate debt rating backed by SLAL to Baa2(hyb) from Baa1(hyb).
Explaining its rationale, Moody’s said: “As part of the transaction, SLA transferred to Phoenix its UK mature retail and spread/risk books as well as the Europe, UK retail and workplace businesses.
“While the debt instruments issued by SLA and backed by SLAL will retain their guarantee, Moody’s considers the guarantee to be weaker as it is now provided by an entity outside of the SLA group,” it said. “As a result, we have removed the one notch uplift above the correspondent subordinated ratings that these instruments have benefited from.”
Moody’s also noted SLA’s intention to redeem the notes using the proceeds of the sale.
Meanwhile, in the rating agency’s view, the expected material capital release for SLA following the deal will allow it to invest in future growth. In addition, Moody’s said the sale completes SLA’s transformation to a fee-based, capital light investment company, with a significantly de-risked balance sheet.
“SLA is keeping its fast growing adviser platforms and financial planning arm,” it noted. “The long-term strategic partnership with Phoenix ensures that SLA can: (i) retain investment management access to the assets under administration it is selling, (ii) continue to manage £48 billion of assets on behalf of Phoenix Group and (iii) potentially obtain additional investment management mandates.”
The firm’s subordinated debt rating was also affirmed at Baa1(hyb) while the outlook was changed from stable(m) to stable.
