OREANDA-NEWS.  Fitch Ratings has assigned Old Mutual plc's GBP450m issue of subordinated debt securities a 'BB+' rating. The notes are rated three notches below Old Mutual's Issuer Default Rating (IDR) of 'BBB+', to reflect their subordination (two notches) and moderate risk of non-performance (one notch), in line with Fitch's notching criteria.

KEY RATING DRIVERS
The securities have a 10-year bullet maturity and pay a 7.875% fixed coupon semi-annually. Fixed-charge coverage is expected to remain solid given Old Mutual's strong track record of earnings generation.

The notes include a mandatory interest deferral feature, which is triggered when the company's capital level falls below the regulatory capital requirement.

The subordinated bonds have been structured to qualify as Tier 2 capital under Solvency II. According to Fitch's methodology, these subordinated bonds are classified as 100% capital within Fitch's own capital assessment due to regulatory override and are classified as 100% debt for the agency's financial leverage calculations as the instruments are dated.

The proceeds of the issuance of the new subordinated debt securities will be partly used to replace the EUR373m Tier 2 debt which has recently been called. The proceeds are also expected to be used to pay maturing senior debt in 2016. The issuance of the new subordinated debt does not have a material impact on Old Mutual's leverage, which is expected to remain low for Old Mutual's rating.

RATING SENSITIVITIES
The ratings on the subordinated debt securities are sensitive to changes in Old Mutual's IDR.