Legal & General's 2064 Subordinated Notes Tender Offer: A Strategic Move for Capital Optimization and Risk Rebalance

Legal & General Group Plc’s recent tender offer for its £600 million Fixed Rate Reset Subordinated Notes due 2064 represents a calculated step in optimizing its capital structure while navigating the impending end of Solvency II transitional arrangements in 2026. By repurchasing these long-term instruments—classified as Tier 2 capital under current regulatory frameworks—the insurer aims to refinance its debt profile with newer, potentially more flexible instruments, such as euro-denominated Tier 2 notes [1]. This move underscores a broader trend among insurers to align capital with evolving regulatory requirements and market conditions.

The tender offer, announced on August 27, 2025, allows noteholders to sell their holdings at 100% of the nominal value, with settlement expected on September 9, 2025 [2]. The decision to cancel repurchased notes directly reduces the company’s long-term debt burden, which is critical for maintaining solvency ratios amid tightening regulatory standards. Legal & General’s proactive approach is further evidenced by its prior tender for £600 million of 2045 notes in April 2025, where it accepted £498.425 million in tenders at 100.25% of face value [3]. These actions collectively signal a disciplined strategy to manage redemption risks and enhance financial flexibility.

From an investor perspective, the timing of the tender offer aligns with a period of stable credit ratings and strategic growth. Legal & General’s long-term issuer credit ratings remain robust, with “A2” from Moody’s, “A” from S&P, and “A+” from Fitch, all with stable outlooks [4]. This creditworthiness is bolstered by the company’s recent half-year results, which showed a 9% increase in core operating earnings per share and a 3.4 billion-pound surge in pension buy-outs [5]. However, the solvency ratio dipped to 217% in 2025, reflecting the capital-intensive nature of its operations [5]. The tender offer could help stabilize this metric by reducing reliance on Tier 2 instruments, which are subject to stricter transitional rules post-2026.

Investor sentiment has been mixed. While the company’s shares fell 3% following its earnings report in August 2025, this decline occurred against a backdrop of a 14% year-to-date rise in share price [5]. Analysts remain cautiously optimistic, with a “Hold” recommendation and a price target of £275.00 [3]. The tender offer may also appeal to risk-averse investors seeking to rebalance portfolios ahead of regulatory uncertainties. By offering preferential allocation in new Tier 2 notes, Legal & General incentivizes noteholders to participate, potentially smoothing the transition to a more resilient capital structure [1].

The broader regulatory context further justifies this strategy. Solvency II’s transitional arrangements, which allowed insurers to phase in capital requirements for long-term liabilities, expire in January 2026. Legal & General’s tender for 2064 notes—maturing over four decades—ensures that its capital base remains compliant with post-transitional rules, which emphasize higher-quality capital and stricter liquidity standards [2]. This proactive stance contrasts with peers who may face abrupt capital shortfalls if they delay refinancing.

In conclusion, Legal & General’s 2064 tender offer is a multifaceted move that addresses regulatory compliance, capital efficiency, and investor risk preferences. By reducing exposure to long-term subordinated debt and issuing newer Tier 2 instruments, the company strengthens its solvency position while providing noteholders with timely liquidity. As the insurance sector adapts to post-Solvency II realities, Legal & General’s strategy exemplifies how strategic debt management can mitigate risk and unlock long-term value.

Source:
[1] Legal & General Announces Tender Offer for Subordinated Notes, [https://www.tipranks.com/news/company-announcements/legal-general-announces-tender-offer-for-subordinated-notes]
[2] Legal & General launches tender offer for £600m subordinated notes, [https://in.investing.com/news/company-news/legal--general-launches-tender-offer-for-600m-subordinated-notes-93CH-4981627]
[3] Legal & General completes tender offer for subordinated notes, [https://www.investing.com/news/company-news/legal--general-completes-tender-offer-for-subordinated-notes-93CH-3962240]
[4] Debt investors, [https://group.legalandgeneral.com/en/investors/debt-investors]
[5] British insurer L&G profit up on pension buy-out spree, [https://www.reuters.com/business/finance/british-insurer-lg-profit-up-pension-buy-out-spree-2025-08-06/]