6. Debt
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The Group enters into long- and short-term debt arrangements to obtain funds for general corporate use and specific transaction financing. The Group defines long-term debt as debt having a maturity at the balance sheet date of greater than one year. The Group’s long-term debt as of 31 December 2003 was as follows:
Long-term debt
Senior debt
|
Maturity |
Instrument |
Issued in |
Currency |
Nominal in millions |
Interest rate |
Book
value in CHF millions |
|
|
||||||
| 2005 | EMTN (Floating Rate Bond) |
2003
|
JPY
|
20000
|
3M Libor
+3bp |
231
|
| 2005 | EMTN (Floating Rate Bond) |
2003
|
JPY
|
10000
|
3M Libor
+5bp |
115
|
| 2005 | EMTN (Floating Rate Bond) |
2003
|
CHF
|
100
|
3M Libor
|
100
|
| 2005 | EMTN (Floating Rate Bond) |
2003
|
USD
|
100
|
3M Libor
+3bp |
124
|
| 2005 | EMTN (Straight Bond) |
2003
|
CHF
|
80
|
0.625%
|
80
|
| 2005 | EMTN (Straight Bond) |
2001
|
GBP
|
150
|
5.625%
|
333
|
| 2006 | EMTN (Floating Rate Bond) |
2003
|
CHF
|
50
|
3M Libor
+2bp |
50
|
| 2006 | Bank Loan |
2003
|
USD
|
100
|
6M Libor
+3bp |
124
|
| 2006 | Private Placement |
2001
|
CHF
|
100
|
3.250%
|
100
|
| 2006 | Senior Notes¹ |
1996
|
USD
|
200
|
7.875%
|
247
|
| 2006 | Fixed Term Preferred Shares |
2002
|
GBP
|
100
|
4.840%
|
221
|
| 2006 | Insurance-linked Placement |
2002/03
|
USD
|
349
|
3M Libor
+4.740% |
431
|
| 2007 | Insurance-linked Placement |
2003
|
USD
|
1
|
5.750%
|
2
|
| 2007 | Insurance-linked Placement |
2003
|
USD
|
10
|
4.750%
|
12
|
| 2007 | Trust-preferred Stock (TruPs)² |
1997
|
USD
|
42
|
8.720%
|
66
|
| 2007 | Straight Bond |
1997
|
CHF
|
500
|
3.750%
|
500
|
| 2008 | Private Placement (step-up) |
2001
|
CHF
|
100
|
3.600%
|
100
|
| 2009 | EMTN (Index-linked Notes) |
2002
|
EUR
|
10
|
Index
|
16
|
| 2010 | EMTN (Amortising Bond) |
2003
|
GBP
|
70
|
4.375%
|
156
|
| 2013 | Private Placement |
2003
|
NZD
|
400
|
7.838%
|
325
|
| 2013 | EMTN (Index-linked Notes) |
2001
|
USD
|
10
|
Index
|
12
|
| 2015 | EMTN (Straight Bond) |
2001
|
CHF
|
150
|
4.000%
|
150
|
| Various Payment Undertaking Agreements |
2000
|
USD
|
172
|
Various
|
245
|
|
| Various Payment Undertaking Agreements |
2001
|
USD
|
95
|
Various
|
135
|
|
| Various Payment Undertaking Agreements |
2002
|
USD
|
441
|
Various
|
608
|
|
| Various Payment Undertaking Agreements |
2003
|
USD
|
166
|
Various
|
212
|
|
|
|
||||||
| Total senior debt as of 31 December 2003 |
4695
|
|||||
|
|
||||||
| Total senior debt as of 31 December 2002 |
3921
|
|||||
|
|
||||||
| ¹ | Assumed in the acquisition of Underwriters Re Group |
| ² | Assumed in the acquisition of Life Re Corporation |
Senior debt as reported above is comprised of the following components:
| CHF millions |
31 December 2002
|
31 December 2003
|
|
|
||
| Senior financial debt |
2207
|
1441
|
| Senior operational debt |
1714
|
3254
|
|
|
||
| Total |
3921
|
4695
|
|
|
||
Subordinated debt
|
Maturity |
Instrument |
Issued in |
Currency |
Nominal in millions |
Interest rate... |
...to first reset in |
Book
value in CHF millions |
|
|
|
||||||||
| 2021 | Convertible Bond |
2001
|
USD
|
1150
|
3.250%
|
2011
|
1398
|
|
| - | Subordinated Perpetual Loan |
1998
|
DEM
|
340
|
6M Libor
+40bp |
2008
|
271
|
|
| - | Subordinated Perpetual Loan |
1998
|
DEM
|
400
|
5.710%
|
2008
|
319
|
|
| - | Subordinated Perpetual Loan |
1998
|
CHF
|
300
|
6M Libor
+37.5bp |
2008
|
300
|
|
| - | Subordinated Perpetual Loan |
1998
|
DEM
|
110
|
6M Libor
+45bp |
2010
|
88
|
|
| - | Subordinated Perpetual Loan (PARCS) |
1999 |
EUR |
250 |
6M Euribor
+55bp |
2006 |
390 |
|
| - | Subordinated Perpetual Bond (SUPERBs) |
1999 |
CHF |
600 |
3.750% |
2011 |
600 |
|
|
|
||||||||
| Total subordinated financial debt as of 31 December 2003 |
3366
|
|||||||
|
|
||||||||
| Total subordinated financial debt as of 31 December 2002 |
3456
|
|||||||
|
|
||||||||
Total financial debt reported in the financial statements as long-term debt is comprised of the following components:
| CHF millions |
31 December 2002
|
31 December 2003
|
|
|
||
| Senior financial debt |
2207
|
1441
|
| Subordinated financial debt |
3456
|
3366
|
|
|
||
| Total |
5663
|
4807
|
|
|
||
Swiss Re uses long-term debt to finance general corporate purposes but also to fund "Financial services assets and liabilities" (funded business). "Financial services assets and liabilities" are structured with the intention of creating assets and liabilities that generate offsetting foreign exchange and interest rate risks. Long-term debt that is strictly used for funded business is classified as operational debt and is included in financial services liabilities. Operational debt is generally excluded from financial leverage calculations.
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Interest expense on long-term debt
Interest expense on long-term debt for the years ended 31 December 2002 and 2003, respectively, was as follows:
| CHF millions |
2002
|
2003
|
|
|
||
| Senior financial debt |
104
|
53
|
| Senior operational debt |
42
|
128
|
| Subordinated financial debt |
132
|
142
|
|
|
||
| Total |
278
|
323
|
|
|
||
In July 1997, the Group issued a straight bond with a face value of CHF 500 million, bearing interest at 3.75%, maturing on 2 July 2007, in exchange for proceeds of CHF 511 million.
In May 1998, the Group issued CHF 1 010 million of multi-currency subordinated debt with a perpetual term, bearing interest at the rate of six month Libor plus 37.5 basis points for the first tranche of CHF 300 million, six month Libor plus 40 basis points for a tranche of DEM 340 million, six month Libor plus 45 basis points for a tranche of DEM 110 million, payable semi-annually, and 5.71% for a tranche of DEM 400 million, payable annually. The loan is subordinated in the event of liquidation to all senior creditors of Swiss Re Zurich, but will be paid in priority to all holders of its equity.
In June 1999, the Group issued CHF 600 million in subordinated perpetual debt, with an interest rate of 3.75% for 12 years, resetting to six month Libor plus 100-140 basis points thereafter, depending upon the rating of Swiss Re.
In June 1999, the Group also issued EUR 250 million of subordinated Perpetual Auction Reset Capital Solvency bonds, with a coupon of six month Euribor plus 55 basis points for the first seven years. After seven years, and every five years thereafter, an auction will be conducted to determine the re-offer yield.
In 2000 the Group entered into three Payment Undertaking Agreements (PUAs) which are a form of financing transaction in which a counterparty deposits funds with the Group having fixed repayment terms and interest rates on the deposited funds. In 2001 and 2002, respectively, three and seventeen additional PUAs were taken out by the Group. In 2003, the Group entered into sixteen PUAs for a total amount of USD 166 million. Thirteen PUAs have fixed interest rates between 4.37% and 6.84%, while three PUAs have floating rates. All maturities are between 2010 and 2050. All interest rate risk is hedged to a one or three month Libor benchmark.
During 2001 the Group issued two private placements in Switzerland, which are a form of financing transaction. The first private placement was issued in June in the amount of CHF 100 million and is due in 2008 with a coupon of 3.60%. In September, an additional private placement of CHF 100 million was issued maturing in 2006 with a coupon of 3.25%.
In June 2001, the Group issued under the European Medium Term Note (EMTN) programme a straight bond totalling CHF 150 million with a coupon of 4% and a 14-year maturity. In August 2001, an additional GBP 150 million was issued under the EMTN programme with a maturity of 4 years and a coupon of 5.625%.
In October 2001, the Group issued under the EMTN programme USD 10 million of index-linked notes. The notes have a maturity of 12 years and interest payments based on the three month Libor as well as an index-related component.
In November 2001, concurrent with its global equity offering, the Group issued USD 1 150 million of subordinated convertible bonds. The bonds have a maturity of 20 years and a fixed coupon of 3.25% during the first 10 years, which will be reset to a floating six month Libor plus 180 basis points for the last 10 years. Up to and including 21 November 2011, the bonds can be converted into Swiss Re shares at a price of CHF 207.19 per share with a fixed USD exchange rate of 1.6641. The bonds have been issued by the Group and are unconditionally and irrevocably guaranteed on a subordinated level.
In 2002, the Group issued under the EMTN programme index-linked notes. In June 2002, EUR 10 million was issued with an index-linked coupon, maturing in 2009.
In April 2002, the Group privately placed GBP 100 million of subsidiary preference shares in the United Kingdom. These shares are redeemable, non-voting and were issued with a cumulative fixed rate dividend of 4.84% (payable semi-annually) and have a final redemption date in 2006.
At 31 December 2002, the Group reclassified USD 200 million and USD 70 million of insurance-linked placements.
In April 2003, the EUR 24 million note, issued in 2002 under the EMTN programme, was repaid prior to maturity.
In 2003, the Group continued the insurance-linked securities programme, called Pioneer 2002, which provides for Swiss Re to receive payments if specified large natural catastrophe events occur.
USD 140 million of these securities were privately placed with institutional investors during 2003. A total amount of USD 349 million had been cumulatively placed with an average interest rate of three month Libor plus 4.74% maturing in 2006.
As of 30 June 2003, the Group consolidated a securitisation vehicle that had placed with institutional investors, in the first half of 2003, catastrophe-linked notes totalling USD 419 million. As of
31 December 2003, the Group is no longer considered the primary beneficiary of the vehicle under the revised guidance on variable interest entities (see notes 1 and 16). As a result, the catastrophe-linked notes were derecognised as of 31 December 2003.
The Group issued a further USD 11 million of insurance-linked securities relating to two catastrophe bond securitisations.
In 2003, the Group issued under the EMTN programme six notes in USD, CHF and JPY currencies totalling CHF 700 million. The maturities ranged from 18 months to three years and were all either issued at or hedged to three month floating interest rates.
In August 2003, the Group issued under the EMTN programme a GBP 70 million bond with a coupon of 4.375% which is repayable annually over 7 years, ending April 2010.
In July 2003, the Group entered into one private placement structure. The transaction amounted to NZD 400 million with a maturity of 10 years and a coupon of 7.838%. Interest is payable monthly.
In December 2003, the Group entered into a bilateral credit agreement of USD 100 million. The respective bank loan bears interest at a rate equal to six month Libor plus 3 basis points and matures in December 2006.
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