Annual Report 2010 - Hannover Re

5.12 Debt and subordinated capital
In order to safeguard the sustained financial strength of the
Hannover Re Group, Hannover Re has issued subordinated
debt by way of a number of guaranteed, callable bonds.
On 14 September 2010 Hannover Re placed a new subordinated
bond on the European capital market through its subsidiary
Hannover Finance (Luxembourg) S.A. This subordinated
debt with a nominal value of EUR 500.0 million has a
maturity of 30 years with a first scheduled call option after ten
years. The bond carries a fixed coupon of 5.75% p.a. in the
first ten years, after which the interest basis changes to a floating
rate of three-month EURIBOR +423.5 basis points.
On 1 June 2005 Hannover Re issued further subordinated
debt in the amount of EUR 500.0 million through its subsidiary
Hannover Finance (Luxembourg) S.A. The bond is perpetual
and carries a fixed coupon of 5.00% in the first ten years.
It may be redeemed by Hannover Re on 1 June 2015 at the
earliest and at each coupon date thereafter. If the bond is
not called at the end of the tenth year, the coupon will step up
to a floating-rate yield of quarterly EURIBOR +268 basis
points. The interest will be serviced according to the same
principles as those practised in the past. As part of the transaction,
holders of the subordinated debt of EUR 350.0 million
placed by Hannover Re in 2001 – which has a term of 30 years
and may be called in prior to maturity by the issuer on
14 March 2011 – were offered an opportunity to exchange
their existing issue for holdings in the new bond. Participation
in the exchange amounted to a nominal value of EUR 211.9
million, corres ponding to EUR 240.5 million of the new bond
issue. The cash component of the new bond in the amount of
nominally EUR 259.5 million was placed predominantly with
institutional investors in Europe. The remaining volume of the
bond issued in 2001 after the exchange was unchanged at
EUR 138.1 million and carries a fixed coupon of 6.25% until
March 2011. If Hannover Re does not exercise its right of
early cancellation on this date, the coupon will step up to a
floating-rate yield of quarterly EURIBOR +205 basis points.
On 26 February 2004 subordinated debt in the amount of EUR
750.0 million was placed through Hannover Finance (Luxembourg)
S.A. on the European capital markets. The bond has a
final maturity of 20 years and for the first ten years carries a
fixed coupon of 5.75% (calculated as a spread of 163 basis
points over the 10-year mid-swap rate at the time of issue). It
may be redeemed by Hannover Re on 26 February 2014 at the
earliest and at each coupon date thereafter. If the bond is not
called at the end of the tenth year, the coupon will step up to
a floating-rate yield of quarterly EURIBOR +263 basis points.
Altogether four subordinated bonds were recognised as at the
balance sheet date with a cost or amortised cost of EUR
1,869.1 million (EUR 1,365.1 million).
162 Notes 5.12 Debt and subordinated capital
Hannover Re Group annual report 2010