TIDMWBS
RNS Number : 3680A
West Bromwich Building Society
20 January 2020
West Bromwich Building Society
Update on PIBS Distribution Policy
In response to investor queries received following the
announcement on 2 October 2019 by West Bromwich Building Society
(the "Society") that it had cancelled the latest scheduled interest
payment on its 6.15 per cent. Permanent Interest Bearing Shares
(the "PIBS"), the Society wishes to clarify its distribution policy
for the PIBS.
By way of background, in 2018 the Society concluded a liability
management exercise ("LME") to modernise its capital structure. In
connection with the LME, the Society announced its distribution
policy with respect to PIBS which remained outstanding following
the LME, as follows:
"In the event that any PIBS remain outstanding following
conclusion of the LME, the current intention of the Board is to
establish a policy whereby if it elects, in its sole discretion, to
make any future payments of distributions on such residual PIBS,
such payments will be made only if and to the extent that they
would have been permitted had the LME not taken place. This will
limit interest payments on the PIBS to the lower of (i) the
equivalent annual yield that would have been paid to holders of
PPDS (had they remained in issue on their original terms); and (ii)
the annual rate set out in the Special Conditions of Issue of the
PIBS (the "Specified Rate"), being 6.15 per cent. prior to 5 April
2021 and, thereafter, a rate of interest reset periodically and
equal to the applicable 5-year gilt rate plus a margin of 2.8 per
cent."
The Society added:
"The Society notes that under this policy is it likely that no
interest payments will be made on the PIBS (if any remain
outstanding) in the near term (including, for the avoidance of
doubt, on 5 April 2018), and that subsequent interest payments on
the PIBS, if made, will likely be below the Specified Rate.
Further, the Board will continue to have complete discretion under
the Special Conditions of Issue of the PIBS not to declare any
distributions. The Board currently expects to pass a resolution
cancelling the PIBS interest payment scheduled for 5 April 2018 in
full. The Board will continue to keep its expected policy under
review, having regard to its duties to act in the interests of the
members of the Society as a whole."
There have been no changes in the Society's view as expressed
above during the LME. However, in light of investor queries
received recently, the Society wishes to confirm as follows with
respect to payments on PIBS being made only if and to the extent
that they would have been permitted had the LME not taken place,
and in the context of determining the equivalent annual yield that
would have been paid to holders of the Society's Profit
Participating Deferred Shares (the "PPDS") had they remained in
issue on their original terms.
Under the terms and conditions of the PPDS (which are available
for viewing on the Society's website), the Society's ability to pay
PPDS distributions was constrained by reference to a percentage of
profits generated in the relevant financial year, and to the extent
of any positive balance on a special PPDS reserve account (to which
a percentage of profits or losses of the Society was allocated each
year). Had the LME not taken place:
- the PPDS would have remained outstanding in full, and
accordingly the relevant profit participation (25% of the Society's
after tax net profits or net losses in each year, subject to the
terms of the PPDS) would have been allocated to the PPDS reserve in
accordance with the terms and conditions of the PPDS; and
- the Tier 2 notes issued by the Society pursuant to the LME
would not have been issued and accordingly, solely for the purposes
of calculating the balance on the notional PPDS reserve, the
Society's net profit/loss is adjusted to disregard the impact of
such Tier 2 interest payments.
In connection with its distribution policy on the PIBS, the
Society continues to calculate the PPDS reserve on the notional
basis described above. The Society intends to publish the balance
of the notional PPDS reserve account alongside its annual financial
statements going forwards.
With respect to the balance of the notional PPDS reserve for the
financial year ended 31 March 2019, and having regard to the
Society's annual financial statements for that year, the notional
PPDS reserve has been calculated as follows:
- as at 31 March 2018 (the last accounting date before
completion of the LME), the PPDS reserve had a
deficit of GBP9.1 million;
- in the financial year ended 31 March 2019, the Society
generated a reported net profit of GBP9.1 million,
including the impact of GBP2.5 million Tier 2 interest payable.
The net profit disregarding Tier 2 interest would
have been GBP11.2 million;
- accordingly, as at 31 March 2019, the notional PPDS reserve
increased by GBP2.8 million (25% x 11.2
million), leaving a deficit of GBP6.3 million.
Since the notional PPDS reserve account was in deficit, no
distributions would have been payable on the PPDS had they remained
outstanding. The annual yield to PPDS holders would therefore have
been nil, and accordingly the equivalent annual yield on the PIBS
would also have been nil.
It should be noted that the PIBS distribution policy is provided
by way of guidance on the Society's current expectations. Whilst
the generation of profits and a positive balance on the notional
PPDS reserve account are
pre-requisites to the payment of PIBS distributions under the
policy, the terms of the PIBS permit the Society to cancel
distribution payments in whole or in part. The Board continues to
keep its PIBS distribution policy under review, and there are no
plans to revise this policy at this time. Should the policy be
amended in the future, the Society will notify the markets
accordingly.
20 January 2020
ENQUIRIES:
The West Brom 0121 796 7790
Ashraf Piranie
Group Finance & Operations Director
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END
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