Aviva Tier 2 note issue wins BBB+ rating from Fitch

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Aviva Tier 2 note BBB+ rating

Highlights

Fitch assigns a 'BBB+' rating to Aviva plc's EUR575 million subordinated Tier 2 notes, three notches below its 'A+' Long-Term Issuer Default Rating.
The notes, issued under Aviva's GBP7 billion euro medium-term note programme, mature in 31.5 years, are callable after 11.5 years, and feature a mandatory interest deferral on solvency shortfall.
Fitch deems the issuance broadly neutral for Aviva's capitalisation and leverage as proceeds will fund a tender offer to buy back instruments callable in 2026 and 2027.

Rating rationale and note structure

As reported by Fitch Ratings, the agency assigns a 'BBB+' rating to Aviva plc's EUR575 million subordinated Tier 2 notes, placing them three notches below the insurer's Long-Term Issuer Default Rating of 'A+'. Fitch says the gap reflects its assessment of 'poor' recovery prospects and 'moderate' non-performance risk for the instrument.

The notes are being issued under Aviva's GBP7 billion euro medium-term note programme. They have a 31.5-year maturity, are callable after 11.5 years, and carry a fixed coupon paid annually in arrears until 2037, after which the rate resets to floating.

Fitch says the recovery assumption is driven by the notes' subordination because Aviva is the ultimate holding company of its insurance operations. In a winding-up, the securities rank ahead of ordinary shares but behind senior creditors.

The agency also points to a mandatory interest deferral feature, which is triggered if Aviva cannot meet applicable solvency capital requirements. Fitch views that feature as supporting a 'moderate' non-performance risk assessment.

Capital and leverage implications

The notes qualify as Tier 2 regulatory capital under Solvency II. Fitch says they receive 100% equity credit in its Prism Global model because of a regulatory override, but are treated as 100% debt in its financial debt leverage calculation because the instrument is dated.

Fitch views the issuance as broadly neutral for Aviva's capitalisation and leverage since the proceeds are earmarked for a tender offer to buy back three outstanding instruments with first call dates in 2026 and 2027. At the same time, the agency expects the new issue to strengthen Aviva's own funds because of its Solvency II eligibility.

Fitch adds that Aviva's fixed-charge coverage remains strong and consistent with current ratings. In its view, the transaction extends the group's maturity profile and reinforces the insurer's financial flexibility.

In our earlier analysis of Aviva’s dividend hike and share buyback, we highlighted how the insurer’s capital return plans and streamlining toward core markets supported confidence in its financial position, backed by a strong Solvency II ratio. We also noted the stock was trading below key moving averages with mixed momentum signals, implying near-term consolidation and elevated downside risk unless resistance levels were cleared.

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