Aviva (AV.)

[GoSeigen]

Quite so. Preference shares are like a form of fixed interest borrowing. They generally have no rights other than for their capital to be returned in a winding up preferentially and for the coupon to be paid in preference to any dividend to ordinary shares. Certainly they have no right to interfere with payments to ordinary shareholders out of the company's surplus resources. Otherwise no company could ever pay a dividend to ordinary shareholders because any payment reduces the surplus assets providing cover for the prefs.

Sorry but Alaric's argument was that it was a return of capital and not a dividend paid from distributable funds so the bit in bold is a red herring.

Obviously if the articles of association of Aviva gave them additional rights that would be a different matter.

[EDIT] Q: Well do they? A: Obviously, can't be bothered to read and find out.

GS

[EthicsGradient]

The terms under which the 2 classes of Aviva preference shares were issued, in the 1990s when it was Commercial Union, are available here: https://www.aviva.com/investors/credit- ... -and-debt/

Under Section 4 "Capital" (page 9 in both - it's a scan, so you can't search for keywords), it says that, in the event of a return of capital other than a winding-up, holders are entitled to the nominal amount plus all arrears and accruals. And under Section 6 "Limitations", it says preference shares do not confer any right of conversion, or participation in an issue of bonus shares. So it looks like they can get what they're entitled to, but since the nominal amount is well below the market price, no-one will ask for it.

The price of the preference shares has increased, since the early March announcement, from about 141p to 144p. https://www.londonstockexchange.com/sto ... mpany-page It doesn't seem to be a problem for the preference share holders.

[Dod101]

Quite so. Preference shares are like a form of fixed interest borrowing. They generally have no rights other than for their capital to be returned in a winding up preferentially and for the coupon to be paid in preference to any dividend to ordinary shares. Certainly they have no right to interfere with payments to ordinary shareholders out of the company's surplus resources. Otherwise no company could ever pay a dividend to ordinary shareholders because any payment reduces the surplus assets providing cover for the prefs.

Sorry but Alaric's argument was that it was a return of capital and not a dividend paid from distributable funds so the bit in bold is a red herring.

Obviously if the articles of association of Aviva gave them additional rights that would be a different matter.

[EDIT] Q: Well do they? A: Obviously, can't be bothered to read and find out.

GS

The Articles of Association are easily found on the Aviva website. I have just glanced through them but there is clearly an interaction between the Company Articles and the various Companies Acts and I am not prepared to study these lengthy documents. It is a long time since I have had to bother myself about this sort of thing and anyway we had a Company Secretary who usually was on hand to help out.

However the lack of any reaction from the Pref shareholders would suggest to me that they accept that this reorganisation of the ordinaries is nothing to do with them.

How relevant the old Commercial Union terms are nowadays I have no idea since Aviva includes many companies other than the old CU. In fact I thought that latterly they were known as Norwich Union.

Dod

Dod

[Alaric]

[ but which he believes they would still refuse at a market value of 145p per share

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

[Dod101]

[ but which he believes they would still refuse at a market value of 145p per share

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

Dod

[daveh]

This is what the terms of the 8 3/8 % prefs says. I'm afraid I've had to type it in by hand as the document is just a scanned original on the AVIVA web site.
Section 4. Capital

iii) On a return of capital (otherwise than on a winding up or on a redemption or purchase by the Company of shares of any class) the holders of the Further New Preference Shares shall be entitled to receive an amount per Further New Preference Share equal to the nominal amount of a Further New Preference Share with all arrears and accruals (if any) of the dividend payable thereon, whether such dividend has been earned or has become due and payable, to be calculated up to and including the day of the return of capital.


So I take that to mean that on a return of capital we the pref holders would get par plus accrued dividend. Except in the situation of a winding up or purchase by the company of shares of any class (ie the purchase of the B shares issued for the return of capital).

The situation of a winding up was covered separately under section ii) which basically said we would get the greater of A) par plus any premium paid on issue or B) the price at which the gross yield of the preference share is equal to the gross yield of 3.5% war loan or similar and not more than 2x par

plus accrued or arrear of dividends.

As there is nothing mentioned on repurchase of shares then I take it to mean that we the pref holders are not due anything. Also if we were then wouldn't the comapny have to do something with the prefs every time they had a share buyback!

PS IANAL

[Dod101]

This is what the terms of the 8 3/8 % prefs says. I'm afraid I've had to type it in by hand as the document is just a scanned original on the AVIVA web site.
Section 4. Capital

iii) On a return of capital (otherwise than on a winding up or on a redemption or purchase by the Company of shares of any class) the holders of the Further New Preference Shares shall be entitled to receive an amount per Further New Preference Share equal to the nominal amount of a Further New Preference Share with all arrears and accruals (if any) of the dividend payable thereon, whether such dividend has been earned or has become due and payable, to be calculated up to and including the day of the return of capital.


So I take that to mean that on a return of capital we the pref holders would get par plus accrued dividend. Except in the situation of a winding up or purchase by the company of shares of any class (ie the purchase of the B shares issued for the return of capital).

The situation of a winding up was covered separately under section ii) which basically said we would get the greater of A) par plus any premium paid on issue or B) the price at which the gross yield of the preference share is equal to the gross yield of 3.5% war loan or similar and not more than 2x par

plus accrued or arrear of dividends.

As there is nothing mentioned on repurchase of shares then I take it to mean that we the pref holders are not due anything. Also if we were then wouldn't the comapny have to do something with the prefs every time they had a share buyback!

PS IANAL

I am not even an ordinary shareholder but I think this is a hair set running for no obvious reason and that the Pref shareholders have no interest and no rights arising from this reorganisation of the ordinary share capital. The above post seems to confirm that.

Dod

[daveh]

I am not even an ordinary shareholder but I think this is a hair set running for no obvious reason and that the Pref shareholders have no interest and no rights arising from this reorganisation of the ordinary share capital. The above post seems to confirm that.

Dod

As a preference share holder I agree with you. But GS has a always had a bee in his bonnet about prefs and the rights pertaining to them - just go and look at the Gilts and Bonds page and the big arguments when Aviva tried to purchase the prefs at par. I have no real idea who was correct in those arguments, but the Institutional Holders made it clear that it (the repurchase at par) was not acceptable to them.

[EthicsGradient]

How relevant the old Commercial Union terms are nowadays I have no idea since Aviva includes many companies other than the old CU. In fact I thought that latterly they were known as Norwich Union.

Dod

The 2 preference shares listed on Aviva's page as "Aviva plc" are the 2 Commercial Union pref share issues from 1992, and one ISIN number matches the one the LSE has for "AV.A 8 3/4% CUM IRRD PRF #1" (I didn't check the other, it didn't seem needed).

[daveh]

How relevant the old Commercial Union terms are nowadays I have no idea since Aviva includes many companies other than the old CU. In fact I thought that latterly they were known as Norwich Union.

Dod

The 2 preference shares listed on Aviva's page as "Aviva plc" are the 2 Commercial Union pref share issues from 1992, and one ISIN number matches the one the LSE has for "AV.A 8 3/4% CUM IRRD PRF #1" (I didn't check the other, it didn't seem needed).

I checked the other the as I own AV.B both are from CU and were issued in 1992.

[Dod101]

How relevant the old Commercial Union terms are nowadays I have no idea since Aviva includes many companies other than the old CU. In fact I thought that latterly they were known as Norwich Union.

Dod

The 2 preference shares listed on Aviva's page as "Aviva plc" are the 2 Commercial Union pref share issues from 1992, and one ISIN number matches the one the LSE has for "AV.A 8 3/4% CUM IRRD PRF #1" (I didn't check the other, it didn't seem needed).

That's interesting so does that mean that what is now the company known as Aviva morphed from the Commercial Union of old? That would also help explain the high interest rate attaching to them.

Dod

[Dod101]

can now answer my own post, not that it particularly relevant for the thread but just to tie up the loose thread.

Commercial Union Assurance merged with General Accident in 1998 and became CGU, then in 2000 merged with Norwich Union and became CGNU which then changed its name to Aviva. So that explains why the Prefs originated with Commercial Union.

It also explains why I keep saying these big insurance companies (only Aviva left now I think) have so much baggage with all the mergers they went through, even although it is now more than 20 years ago. The current management of Aviva seem to be finally getting a grip of it.

Slight digression. Sorry.

Dod

[Alaric]

It also explains why I keep saying these big insurance companies (only Aviva left now I think) have so much baggage with all the mergers they went through, even although it is now more than 20 years ago.

Former mutual Friends Provident which became Friends Life when it listed is also somewhere in the Aviva mix. :Legal & General by contrast grew without really needing mergers,

[Dod101]

It also explains why I keep saying these big insurance companies (only Aviva left now I think) have so much baggage with all the mergers they went through, even although it is now more than 20 years ago.

Former mutual Friends Provident which became Friends Life when it listed is also somewhere in the Aviva mix. :Legal & General by contrast grew without really needing mergers,

That was quite recently. According to Mr Google, the deal was done in 2015 so as you say another merger. And of course all these mergers confuse the culture. CU was an old style conservative company, General Accident quite different and a sort of 'second tier' company. Then merging with a couple of mutuals in the form of NU and then Friends is bound to be a different culture again.

In contrast as you say, Legal & General have had only a few relatively minor buys over the years and they have a strong culture of their own, developed over many years.

Dod

[GoSeigen]

Well, I was curious enough about this situation to do a little digging. Here is what I found:

1. The return of capital consists of an issue of redeemable preference shares ("B shares") to ordinary shareholders financed by a capitalisation of the company's merger reserve and presumably ranking pari passu with existing preference shares.

2. The redemption occurs almost immediately with proceeds being paid to the owners of the B shares.

3. I examined the terms for AV.A preference shares, issued in 1992 by Aviva PLC previously known as CU. I think the share offer is permitted by particular exceptions/wording in the following clauses of that document:

-Clause 4(iii) On a return of capital (otherwise than a winding up or on a redemption or purchase by the Company of shares of any class), the shareholders shall be entitled to receive [...] the nominal amount [...]

-and probably the exclusions in Clause 8 ("Further Issues and Variation of Rights") which I shall not reproduce here as it is rather long-winded but in short it places limits on how many new pari passu preference shares may be issued such that all issues do not exceed 25% of the value of the Company's Share Capital and Reserves.

and
-Clause 9 Restrictions on the Company. Save with [...] consent [of the holders], the Directors shall not capitalise any part of the profits of the Company available for distribution or purchase or redeem any shares of the Company if [...] (ii) after such capitalisation, purchase or redemption the amount of the profits of the Company available for distribution would be less than ten times the aggregate amount of the annual dividends payable on [any] preference shares then in issue ranking as regards dividends pari passu with or in priority to the New Preference Shares.



Would welcome views of others on whether I am on the right track and whether Aviva have set the size of the return of capital to comply with these clauses. I have not checked the values myself.

GS

[GoSeigen]

[ but which he believes they would still refuse at a market value of 145p per share

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

Dod

Both of them are irredeemable so there is no question of redemption. The issue we are discussing is whether they are entitled to repayment in advance of ordinary shareholders on the basis that the company is reducing its capital. But if you read my latest message I have concluded that what is being done is a new issue and redemption, carefully navigating clauses which allow this within certain limits.

GS

[Dod101]

[ but which he believes they would still refuse at a market value of 145p per share

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

Dod

Both of them are irredeemable so there is no question of redemption. The issue we are discussing is whether they are entitled to repayment in advance of ordinary shareholders on the basis that the company is reducing its capital. But if you read my latest message I have concluded that what is being done is a new issue and redemption, carefully navigating clauses which allow this within certain limits.

GS

Well I am, not sure that what you say is correct but neither am I inclined to discuss it any further since it is to me a pointless exercise.

Dod

[GoSeigen]

[ but which he believes they would still refuse at a market value of 145p per share

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

Dod

Both of them are irredeemable so there is no question of redemption. The issue we are discussing is whether they are entitled to repayment in advance of ordinary shareholders on the basis that the company is reducing its capital. But if you read my latest message I have concluded that what is being done is a new issue and redemption, carefully navigating clauses which allow this within certain limits.

GS

Well I am, not sure that what you say is correct but neither am I inclined to discuss it any further since it is to me a pointless exercise.

Dod

If you believe they are redeemable shares then all you need do is post the redemption terms: redemption date and price. But you can't do that because they are not redeemable. Sorry.

GS

[Dod101]

Why would anyone accept par value when the security and comparable income generating securities were trading at a price of 145?

The more interesting and practical question is this, If the Prefs were trading below par, would Aviva have been able to make the return of capital without paying off the Prefs at par or close to par in some manner?

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

Dod

Both of them are irredeemable so there is no question of redemption. The issue we are discussing is whether they are entitled to repayment in advance of ordinary shareholders on the basis that the company is reducing its capital. But if you read my latest message I have concluded that what is being done is a new issue and redemption, carefully navigating clauses which allow this within certain limits.

GS

Well I am, not sure that what you say is correct but neither am I inclined to discuss it any further since it is to me a pointless exercise.

Dod

If you believe they are redeemable shares then all you need do is post the redemption terms: redemption date and price. But you can't do that because they are not redeemable. Sorry.

GS

Nothing to be sorry about. Never claimed they were redeemable. As I said, a pointless exercise.

Dod

[GoSeigen]

Nothing to be sorry about. Never claimed they were redeemable. As I said, a pointless exercise.

Dod

You talked about them being redeemed; Aviva cannot redeem them because they have no redemption feature [in contrast to the B shares which will be issued as redeemable preference shares]:

Given that the yield at par value is 8.375% and 8.75% I should think that Aviva would be delighted to redeem them at par, but to answer your direct question I would not have thought that Aviva would have been obliged to redeem them though, although I do not know their exact terms and conditions.

But never mind, I think we've cleared it up now...


GS