Royal & Sun Alliance sets spread in exchange

New York, May 2 - Royal & Sun Alliance Insurance Group plc fixed the spread for the new sterling perpetual guaranteed bonds to be issued in its exchange for any or all of its dollar-denominated subordinated bonds at 187 basis points over the bid-side yield of the 4¾% U.K. Treasury due Sept. 7, 2015.

Pricing will be fixed at around 8 a.m. ET on May 5 and the exchange ends at 10 a.m. ET the same day. Settlement is scheduled for May 12.

As announced on April 20, Royal & Sun Alliance is seeking to replace its $500 million of 8.95% subordinated guaranteed bonds due 2029 with sterling-denominated perpetual guaranteed capital securities in order to improve its balance sheet and strengthen the regulatory capital position of the group.

The existing 8.95% bonds do not qualify as regulatory capital, the company explained at the time it launched the deal.

The offer is in two parts - a direct exchange and a tender offer being conducted by Merrill Lynch. Merrill will then exchange any bonds tendered.

Under the exchange, Royal & Sun Alliance is offering sterling perpetual guaranteed bonds for the Yankee bonds.

Royal & Sun Alliance added that it may also sell additional sterling perpetual guaranteed bonds for cash and use proceeds to support its general insurance activities.

Merrill Lynch International is joint dealer manager and structuring advisor (+44 20 7995 3715) and BNP Paribas Edward Stevenson (+44 20 7595 8385), Lehman Brothers International (Europe) (+44 20 7103 2014) and HSBC Bank plc (+44 20 7991 5866) are joint dealer managers.

The exchange offer is only being made outside the United States.

The tender offer, via Merrill Lynch International, will expire at midnight ET on May 18.

The consideration for each $1,000 principal amount of bonds tendered will be 125 basis points over the bid-side yield of the 5.375% Treasury note due Feb. 15, 2031 at 10 a.m. ET on May 4.

This consideration includes a $40.00 early participation payment per $1,000 principal amount of bonds for holders who tender before 5 p.m. ET on May 4.

All holders who tender will receive accrued interest up to but excluding the payment date.

Merrill will then give the tendered bonds to Royal & Sun Alliance in exchange for pound-denominated perpetual guaranteed subordinated capital securities.

Bondholders who tender will only receive the cash consideration and will not be able to participate in the exchange offer, according to the release.

D.F. King & Co. Inc. (800 769-4414 or 212 269-5550, call collect) is the information agent for the tender offer and Merrill Lynch, Pierce, Fenner & Smith Inc. (888 654-8637 or 212 449-4914, call collect) is the dealer manager.

Royal & Sun Alliance is a property and casualty insurance group based in London.

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