NBSR Newcastle 125/8

 

TIDMNBSR 
 
RNS Number : 2277K 
Newcastle Building Society 
15 April 2010 
 

 
 
 
 
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| PRESS RELEASE                |                15 April 2010 | 
+------------------------------+------------------------------+ 
 
           Newcastle Building Society Announces Capital Strengthening 
 
Summary 
 
Newcastle Building Society (the "Society") today announces that it has reached 
an agreement with holders of certain classes of the Society's existing 
subordinated debt and permanent interest bearing shares ("PIBS") which will lead 
to a material strengthening of the Society's capital position (the "Capital 
Agreement"). 
 
The Capital Agreement reflects a proactive initiative by the Society to underpin 
its financial strength and further enhance its standing as a 
market-counterparty.  Under the Capital Agreement, the Society has agreed with 
holders of certain classes of its subordinated debt and PIBS to add, in return 
for an uplift in coupon, a conversion feature such that those instruments would 
convert into profit participating deferred shares ("PPDS"), a core tier 1 
capital instrument, should the Society's core tier 1 capital ratio fall below 
5%.  The Capital Agreement applies to GBP46 million in total of the Society's 
subordinated debt and PIBS. 
 
As a result of the Capital Agreement therefore, in addition to the GBP179 
million of core tier 1 capital held by the Society as at 31 December 2009, the 
Society will also have GBP46 million of contingent core tier 1 capital (such 
contingent core tier 1 capital being equivalent to 2.2% of the Society's risk 
weighted assets).  As at 31 December 2009, the Society had a core tier 1 capital 
ratio of 8.7% (up from 7.8% at the prior year end).  The Capital Agreement will 
therefore further strengthen the Society's capital position, providing 2.2% of 
contingent core tier 1 capital in addition to the existing 8.7% core tier 1 
capital ratio as at 31 December 2009. 
 
Additionally, the Society has introduced an innovative feature which means that 
the relevant instruments would cease to be convertible and the coupon uplift 
would fall away if the Society's core tier 1 capital ratio exceeds 12%.  This 
feature has helped minimise the level of coupon uplift necessary to secure the 
agreement of the investors who are a party to the Capital Agreement. 
 
Jim Willens, Chief Executive of Newcastle, said: "This initiative represents a 
significant enhancement to the quality of our capital base and provides further 
underpinning to our financial strength.  It puts us on a very solid footing and 
will support our strategy of providing long-term member value as a strong, 
traditional and independent building society." 
Terms 
 
The details of the proposed Capital Agreement are summarised below: 
 
·       The instruments subject to the Capital Agreement are: 
-       the GBP11 million 6.375% fixed rate subordinated notes due 2015 (ISIN: 
XS0227704037) ("2015 Notes"); 
-       the GBP25 million 6.19% fixed rate subordinated loan due 2017 ("2017 
Loan"); and 
-       the GBP10 million 12% permanent interest bearing shares ("2008 PIBS") 
(together the "Relevant Securities"). 
·       The investor parties to the Capital Agreement are the lender under the 
2017 Loan, each of the holders of the 2008 PIBS and, with respect to the 2015 
Notes, holders or parties acting as investment manager for holders together 
representing 75% by value of the 2015 Notes. 
·      The Society's other subordinated notes (the GBP25 million 6.625% fixed 
rate subordinated notes due 2019, ISIN XS0178286901) and PIBS (the GBP10 million 
12.625% PIBS, ISIN GB0006361371; and the GBP10 million 10.75% PIBS, ISIN 
GB0006371529) are not subject to the Capital Agreement. 
·       All the different classes of the Relevant Securities would convert in 
full and on the same terms into PPDS if the Society's core tier 1 capital ratio 
falls below 5% (this would require a reduction in the core tier 1 capital ratio 
of over 40% or aggregate pre-tax losses of in excess of GBP105 million). 
·       In the event of conversion, the PPDS would (under current rules) qualify 
as core tier 1 capital of the Society and be eligible for a dividend payment 
based on a percentage of the Society's annual post-tax profits.  This 
percentage, which would be determined at the time of conversion, would be 
equivalent to that proportion of the Society's core tier 1 capital which the 
PPDS represent immediately after conversion.  Any such dividend would be at the 
sole discretion of the Society's board of directors. 
·       In consideration of agreeing to the insertion of a conversion feature to 
the terms of the Relevant Securities, the coupon on the Relevant Securities will 
be amended as follows: 
-       2015 Notes: increased by 1% to 7.375% and held at this rate for the 
duration of the Notes; 
-       2017 Loan: increased by 1% to 7.19% with the rate from October 2012 also 
being increased by 1% (to 8.19%); and 
-       2008 PIBS: increased by 0.25% to 12.25% with the rate from December 2018 
also being increased by 0.25% (to 3 month LIBOR + 11.25%). 
·       In the event that the Society's core tier 1 ratio is equal to or greater 
than 12%, the Relevant Securities would cease to be convertible into PPDS and 
the then prevailing coupon on the Relevant Securities would be reduced by 1% for 
the 2015 Notes and 2017 Loan and 0.25% for the 2008 PIBS. 
·       Prior to any conversion into PPDS, the 2015 Notes and 2017 Loan will 
continue to be classified as lower tier 2 capital and the 2008 PIBS will 
continue to be classified as tier 1 capital. 
·       The FSA has reviewed the amended terms of the Relevant Securities and 
has granted to the Society a direction to modify certain rules in the FSA's 
General Prudential sourcebook to allow for the coupon increase with respect to 
the Relevant Securities. 
·       Completion of the Capital Agreement in respect of all the Relevant 
Securities is subject to the passing, at a meeting of the holders of the 2015 
Notes to be held as soon as practicable after the date of this announcement, of 
a resolution to approve the necessary changes to the terms of the 2015 Notes. 
The Society has received irrevocable undertakings, from persons representing 75% 
by value of the 2015 Notes, to vote in favour, or recommend that the beneficial 
holder votes in favour, of a resolution to approve such changes. 
·       The Capital Agreement is expected to complete in early May. 
 
Lexicon Partners acted as financial adviser to the Society. 
 
For more information contact: 
 
Newcastle Building Society 
 
+------------------------------+----------------------------+ 
| Natalie Falkous              | Richard Hall               | 
| Group Corporate              | Communications Assistant   | 
| Communications Manager       |                            | 
+------------------------------+----------------------------+ 
| Newcastle Building Society   | Newcastle Building Society | 
+------------------------------+----------------------------+ 
| 0191 244 2024                | 0191 244 1522              | 
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| 07917388329                  |                            | 
+------------------------------+----------------------------+ 
 
+-------------------------------+----------------------------+ 
| National Media Enquiries      | Regional Media Enquiries   | 
+-------------------------------+----------------------------+ 
| The Wriglesworth Consultancy  | Julian Christopher         | 
+-------------------------------+----------------------------+ 
| John Wriglesworth             | Footprint Public Relations | 
| 07774988275                   |                            | 
| Or                            | 07891 005034               | 
| Emma Bowden                   |                            | 
| 020 7427 1400                 |                            | 
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|                               |                            | 
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Notes: 
 
A summary of the terms of the PPDS, if issued, is set out below: 
 
-   The PPDS would be deferred shares for the purposes of Section 119 of the 
Building Societies Act 1986, as amended; 
-   The PPDS would be perpetual instruments with no maturity date or right to 
repayment other than on a winding-up; 
-   In the event of a winding-up, the PPDS would rank pari passu with the claims 
in respect of the Society's other classes of PIBS; 
-   Save as described below, the holders of the PPDS would be eligible to 
receive a dividend, any such dividend to be at the discretion of the Board of 
the Society, based upon the annual consolidated post-tax profits of the Society 
(calculated prior to payment of the PPDS dividend and subject to certain other 
adjustments); 
-   The maximum participation percentage of profits for which the PPDS holders 
would be eligible would be equivalent to that proportion of the Society's core 
tier 1 capital which the PPDS represent immediately after conversion (the 
"Participation Percentage"); 
-   The PPDS would also absorb the Participation Percentage of any consolidated 
post-tax losses recorded by the Society, any such amount being debited to a 
reserve account maintained by the Society for the purpose of the PPDS (the "PPDS 
Reserve Account").  Any net profits which are eligible to be paid to holders of 
PPDS as dividends but which are not so paid would be credited to the PPDS 
Reserve Account; 
-   No dividends may be paid on the PPDS in years where the Society incurs 
consolidated post-tax losses or where the PPDS Reserve Account is in deficit as 
a result of previous years' losses; 
-   Dividends on the PPDS are non-cumulative; and 
-   The PPDS would not be protected deposits for the purposes of the Financial 
Services Compensation Scheme. 
 
 
This announcement, including information included or incorporated by reference 
in this announcement, may contain "forward-looking statements" concerning the 
Society.  Generally, the words "will", "may", "should", "could", "would", "can", 
"continue", "opportunity", "believes", "expects", "intends", "anticipates", 
"estimates" or similar expressions identify forward-looking statements.  The 
forward-looking statements involve risks and uncertainties that could cause 
actual results to differ materially from those expressed in the forward-looking 
statements.  Many of these risks and uncertainties relate to factors that are 
beyond the Society's ability to control or estimate precisely, such as future 
market conditions and the behaviours of other market participants, and therefore 
undue reliance should not be placed on such statements.  The Society assumes no 
obligation and does not intend to update these forward-looking statements, 
except as required pursuant to applicable law. 
 
Lexicon Partners, which is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting exclusively for Newcastle Building 
Society and no-one else in connection with the Capital Agreement and will not be 
responsible to anyone other than Newcastle Building Society for providing the 
protections afforded to customers of Lexicon Partners or for providing advice in 
relation to the Capital Agreement or in relation to the contents of this 
announcement or any transaction or arrangement referred to herein. 
 
This announcement is only being distributed to and is only directed at (i) 
investment professionals falling within Article 19(5) of the Financial Services 
and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order"); or (ii) to 
high net worth entities and other persons to whom it may lawfully be 
communicated, falling within Article 49(2)(a) of the Order; or (iii) persons 
falling with Article 43(2) of the Order (all such persons in (i), (ii) and (iii) 
above together being referred to as "relevant persons").  Any investment or 
investment activity to which this announcement relates is available only to 
relevant persons and will be engaged in only with relevant persons.  This 
announcement must not be acted on or relied on by persons who are not relevant 
persons. 
 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
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