It seems to me now that the only issue remaining for Aegon on triggering the Mandatory Payment event for four quarters after May 2009 is whether a payment was in fact made to its majority shareholder on the Junior Securities: Impact of Any Payment to Dutch State in May
My reasoning is that any payment on a Junior Security triggers a Mandatory Payment Event: More on ING and AEGON Mandatory Payment Events/Alternative Payment Mechanism:
The debate has been whether the trigger would require four quarterly payments or two.
The language of the agreement between Aegon and its majority shareholder supports my thesis of classifying that security as paying annually. And that is important in the analysis of whether or not four payments or two are then required to be made:
" If a Mandatory Payment Event occurs, then the Interest Payments payable on the next four consecutive Interest Payment Dates, the next two consecutive Interest Payment Dates or the next Interest Payment Date, as the case may be, following the Mandatory Payment Event,depending on whether the Junior Security, the Parity Security or the security benefiting from a Junior Guarantee or a Parity Guarantee pays dividends or income distributions on an annual basis, a semi-annual basis or a quarterly basis, as the case may be, will be mandatorily due and payable in full on the relevant Interest Payment Dates."
This language clearly ties the number of mandatory payments to "whether the Junior Security....pays dividends or income distributions on an annual basis, a semi-annual basis or a quarterly basis" I interpret this language as linking the four payments to a payment on a Junior Security "that pays dividends or income distributions on an annual basis", and it appears clear to me that is the case for the Junior Security issued by Aegon in connection with the bailout by the Dutch government in December last year. (See item #3: Impact of Any Payment to Dutch State in May) I would be interested to hear why that would not be the case. The 2 payments is linked to a Junior Security that pays semi-annually. The junior securities issued to the majority shareholder are not semi-annual, but annual payment securities.
So the important point that I would make is that the number of mandatory payments is linked to classifying the term for the Junior, as being annual, semi-annual or quarterly, not whether a partial annual payment is made to align and compensate for the short annual period from the time the document is signed to the first coupon date. So, I am going to upgrade this argument from a mere good faith argument to a better & more cogent position than the two payment argument.
So if anyone would leave a comment showing the payment was made in fact in May 2009, it would be appreciated by everyone following this issue.
THIS IS SEPARATE AND DISTINCT FROM THE MANDATORY PAYMENT TRIGGER CAUSED BY BUYING JUNIOR SECURITIES.
Based on the differences in language in the ING contract, I am keeping the argument for ING on this subject at no higher than a mere good faith argument.
According to Aegon's Q2 interim financial statements, a payment of €122 million of 2008 annual dividends on the preferred shares was made.
ReplyDeletehttp://www.aegon.com/SecureDocuments/2009%20Q2%20results/EN/Interim%20financial%20statements%20Q2%202009.pdf
shown on page 5
Cathie: The 122 million euros shown on that page may be the payment to the majority shareholder in May. That would have been a payment made in the second quarter of 2009 which is when the payment to the majority shareholder would have been made based on my current understanding of the transaction. The par value was 3 billion Euros and the rate was .085% which gives you an annual 255 million Euros, and then divide that by 1/2 for the short period and you do get 127.5 million Euros for 6 months. That is close but I am not 100% convinced that is the payment. The payment is apparently different than the "coupons on perpetuals" listed at 45 million. The difference between the 122 and 127.5 may be explained by the period not being for an entire six months, but I do not know. The coupon date is stated to be the date the annual dividend is paid to the common shareholders, and it may simply be a question of how that would have been from 12/1/2008 which is the start date for computing interest for the First Coupon to the First Coupon payment date:
ReplyDelete" Issue Date means 1 December 2008, being the date of initial issue of the Securities;"
"Coupon Payment Date means in each year, the date on which the annual dividend is paid to the holders of Common Shares, starting in 2009;"
The 8.5% interest payment on the loan from the Dutch govt (via Vereniging AEGON) was required to be paid only if Aegon declared a dividend on its common shares for 2008. Aegon declared an "interim" 2008 dividend before it received the government loan, but no final dividend thereafter.
ReplyDeleteI couldn't find anything in the Q2 financial statements that indicates that they actually paid that 8.5% interest payment.
However, in Q2 2009, Aegon DID pay €122m to its majority shareholder on its preferred shares, which are Junior Securities.
"A Mandatory Payment Event occurs if:
• we declare, pay or distribute a dividend or make a payment (other than a dividend in the form of Common Shares) on any of our Junior Securities or make a payment on a Junior Guarantee;"
http://www.sec.gov/Archives/edgar/data/769218/000104746905027220/a2165212z424b5.htm
page S-20
CATHIE: I think that we are talking about the same thing. The 8.5% coupon rate is the rate for the security issued to the majority shareholder by Aegon, and the first payment was a short period for the annual coupon. It is not important for applying the Mandatory Payment Event clause whether the majority shareholder paid the Dutch government, which I am sure that they did provided they received payment from Aegon.
ReplyDeleteThe deal was structured as a flow through. Aegon pays the majority shareholder, and the majority shareholder pays the Dutch government. The rates would be the same. The issue that I have is that the 122 figure does not match up exactly with a 6 month coupon payment of 8.5% on 3 billion Euros par value of those securities exactly, and that may have something to do with the period being a couple of weeks shorter than 6 months.
I think everyone is in agreement that a payment to the majority shareholder would be a Mandatory payment event. The shares issued to the majority shareholder are clearly stated as in pari passu with common. I do not know how anyone could argue that those shares are not Junior Securities to the hybrid bonds.
In a separate commment, I referred to a quote on the ING website stating that, in accordance with its contractual obligation, ING had made an interest payment to the Dutch state in May 2009. As to AEGON, I tried to find similar information evidencing that an interest payment to the Dutch state (through the majority shareholder) has also taken place in May 2009 as stipulated in the agreement between Aegon, its majority shareholder and the Dutch state. As of today I could not find such information. In a Bloomberg note dated Oct. 28, 2008, the company spokesman was quoted as saying that an interest payment of appr. 128 million Euros will be made to the Dutch state in May 2009: "Based on 2008's first-half dividend, The Netherlands will receive about 128 million euros in May 2009 from Aegon, company spokesman Greg Tucker said."
ReplyDeletehttp://www.bloomberg.com/apps/news?pid=20601087&sid=aBlAqUwMisW4&refer=home
Whether the payment was actually made is not known to me. However, in the absence of any contrary news I have no reason to believe that the payment has not taken place.
MichaelandFred: I did note that you provided the information on ING in a subsequent blog. http://tennesseeindependent.blogspot.com
ReplyDelete/2009/08/sold-12-inzing-paid-dutch-state-in-may.html
Thanks for hitting that nail on the head. I like to tie up loose ends.
In Aegon's case, the payment was required with the approval of the Dutch central bank once Aegon paid a common dividend in the fiscal year starting in May 2008, which it did in September 2008. So, I also believe that it would be reasonable to assume its payment was also made.
"Interest on the Securities shall only become due and payable if and to the extent dividend in respect of the Common Shares is declared over the Issuer’s Financial Year ending in such Coupon Period" http://www.sec.gov/Archives
/edgar/data/
769218/000119312509068788
/dex411.htm
I did a slight pare on a ING position in a taxable account that had more than doubled since purchase last February.
I have achieved enough of a comfort level to continue holding all of my Aegon shares.