Phoenix Capital Raising 2025: More Regulatory Capital, Almost No Standalone Cushion

Getting to Know the Company

Phoenix Capital Raising is not an insurance company, and it is not really a normal corporate bond issuer either. It is a dedicated funding vehicle for Phoenix Insurance. It issues bonds and hybrid capital instruments, deposits the proceeds with Phoenix Insurance through a subordinated deposit, and exists mainly to turn local capital-market access into regulatory capital for the insurer. Anyone reading this like a normal operating company report will miss the core point. There is almost no standalone business here, almost no free cash, and almost every real question ultimately comes back to Phoenix Insurance's solvency.

What is working right now is fairly clear. In 2025 the vehicle showed that the group still has deep access to the Israeli debt market: series 16 and 17 were issued in April and expanded in July, a new RT1 layer was added through series 18 in October, and series 8 was fully redeemed in July. Total assets rose to NIS 6.964 billion, while the deferred deposit rose to NIS 6.920 billion. At the same time, Phoenix Insurance's solvency ratio stood at 178% as of June 30, 2025, or 182% after material capital actions, and the September estimate reached 179%.

But this is also where a superficial reading can go wrong. Equity did rise from NIS 60.7 million to NIS 146.5 million, but that is not a newly built liquidity cushion inside the issuer. Operating cash flow stayed at zero. Financing activity and investing activity both came to NIS 1.103 billion in opposite directions, so cash at year end remained just NIS 7 thousand. Put differently, 2025 expanded the pipe and strengthened the group's regulatory capital stack, but it still did not create a standalone business or a standalone cash cushion at Phoenix Capital Raising itself.

That is also the active bottleneck. This story will not be decided by the issuer's NIS 85.8 million net profit line. It will be decided by three other questions: how much clean solvency headroom Phoenix Insurance keeps without transitional measures, how open the debt market remains for refinancing and early calls at sensible pricing, and how seriously investors should treat the coupon deferral and loss-absorption mechanics in the RT1 layer. This matters now because 2025 made that layer larger, while also making the gap clearer between accounting value at the issuer and real balance-sheet protection sitting at Phoenix Insurance.

The quick map is simple:

That chart captures the story in compressed form. Assets, the deposit, and debt all grew together. Equity rose too, but it remained a very small slice of the balance sheet. That is why trying to understand this issuer through an equity lens or through standalone capital metrics is the wrong frame. The economically important entity is Phoenix Insurance. The company in front of us is the conduit that converts capital-market access into regulatory capital for that insurer.

There is also a practical market screen that matters upfront. This is a bond-only name, with no live trading data and no short-interest data available. That means there is no equity-liquidity angle here and no classic "fundamentals versus stock price" debate. The correct read is entirely about capital structure, ratings, instrument terms, and solvency headroom.

Events and Triggers

2025 was a year of capital-stack replacement

The first trigger: In April 2025, series 16 and 17 were issued with total par value of NIS 786.147 million and gross proceeds of about NIS 780.712 million. Phoenix Insurance recognized them as tier 2 capital. The proceeds were used to redeem series 8 early. This was not just more debt. It was a refinancing move that replaced an older layer with newer instruments and pushed the stack further out.

The second trigger: In July 2025, the same series were expanded again, NIS 440.819 million par in series 16 and NIS 137.243 million par in series 17, with gross proceeds of about NIS 600 million. Looking only at year-end debt would make this look like straightforward balance-sheet growth. That is incomplete. Part of the issuance replaced an older layer, and part of it expanded the amount of regulatory-recognized capital available to Phoenix Insurance.

The third trigger: In October 2025, a new RT1 layer was added through series 18, with NIS 500 million par value and proceeds of about NIS 494 million. This matters more than the headline amount because it shifts part of the structure from tier 2 into additional tier 1 capital, with materially harsher loss-absorption features.

The fourth trigger: On July 31, 2025, series 8 was fully redeemed for about NIS 781 million and delisted. So 2025 was not a simple "more of the same" year. It was a year of redesigning the capital stack, both for investors buying the instruments and for Phoenix Insurance's regulatory capital position.

That chart matters because it shows that the increase in debt was not driven by issuance alone. There was also an indexation effect and a small residual "other changes" bucket. More importantly, it reminds the reader that this debt growth was mirrored almost one for one on the deposit side. The real question is therefore not whether the issuer became a bigger business, but what kind of regulatory cushion the group built inside Phoenix Insurance.

After the balance-sheet date, the market still has to judge the parent's cushion

The fifth trigger: After year end, on January 29, 2026, an in-kind dividend of El Al Frequent Flyer shares was approved at an accounting value of about NIS 147 million. On March 25, 2026, a cash dividend of NIS 273 million was also approved. Together, that is NIS 420 million of distributions approved after 2025 closed. This matters because it shows the group is not simply parking the capital buffer inside Phoenix Insurance. It is actively managing that buffer upward through the chain.

The sixth trigger: Despite those distributions, Phoenix Insurance's estimated solvency ratio as of September 30, 2025 stood at 179%, and the report explicitly says that this estimate already reflects the in-kind and cash dividends that were declared and executed in the first quarter of 2026. That is a partial confirmation that the cushion survives after upstream distributions, but it also shows that the cushion is being managed rather than left untouched.

The seventh trigger: In February 2026, Moody's upgraded Phoenix Insurance from Baa1 stable to A3 stable. That is a meaningful external confirmation. Investors are not being asked to rely only on management framing.

The eighth trigger, smaller but still useful: In January 2026 the company reported that series 13's coupon rate for the November 1, 2025 to January 31, 2026 period was 1.51370%. That is a reminder that one slice of the stack still reprices with the rate environment, but it also clarifies that the big story is not one floating-rate series. It is regulatory recognition and the group's capital-market access.

There were also immediate reports that did not materially change the thesis, including a legal claim reported by the parent and a director departure at the parent level. That distinction matters. Not every filing around the issuer changes the way the funding vehicle should be read. The filings that do matter are the ones tied to Phoenix Insurance's capital cushion, distribution policy, funding cost, and regulatory capital recognition.

Efficiency, Profitability and Competition

There is no standalone operating engine here

The easiest mistake in this report is to look at the NIS 85.8 million net profit and conclude that the company became more profitable in an operating sense. That is wrong. Almost every operating line here mirrors another line. In 2025, finance income totaled NIS 277.051 million, and finance expense was exactly the same amount, NIS 277.051 million. Expense reimbursement from the parent was NIS 1.399 million, and general and administrative expense was also NIS 1.399 million.

What remains in the middle is mostly an accounting revaluation layer. The company recorded NIS 133.105 million of income from revaluing the deferred deposit, against NIS 1.427 million of additional expected-credit-loss expense and NIS 45.846 million of tax. That means almost all of the profit is a mark-to-market consequence of the deferred deposit linked to series 12, not evidence of a newly improved business.

That chart makes it clear why reading the company through the bottom line alone is misleading. Finance income is relatively stable and fully offset by finance expense. Net profit moves with revaluation income, not with a new operating engine. Anyone looking for operating leverage or competitive strength at the issuer level is looking in the wrong place.

Profit comes from revaluation, not from cash accumulation

The report practically says this out loud. In the balance-sheet discussion it states that the equity surplus at December 31, 2025 was mainly driven by revaluing the deferred deposit against series 12 to fair value. That is a key distinction, because it separates accounting value from value that is actually liquid and available.

The accounting logic is straightforward. The deposit linked to an additional tier 1 instrument is measured at fair value through profit and loss because its contractual cash flows are not purely principal and interest. The possible write-down feature prevents it from qualifying for amortized cost. So this is not accounting window dressing. It is a legitimate consequence of the instrument's structure. But analytically, it means net profit does not equal freely available protection at the issuer.

That chart shows something else a quick read could miss. Profit in 2025 was not generated evenly through the year. Most of it arrived in quarters where the deposit revaluation was larger, especially in the second quarter. That strengthens the point that the reported earnings line mostly reflects instrument pricing and market movement, not an improvement in standalone cash-generating power.

The expense layer tells the same story. The company barely carries independent costs. The G&A note shows NIS 960 thousand of professional services and NIS 439 thousand of fees, while the corporate-governance section makes clear that officers are group officers whose compensation is paid by Phoenix Insurance. That is not operational efficiency in the competitive sense. It is simply the natural result of a thin legal entity designed to do one job.

So in a section called efficiency and profitability, the right question is not price-volume-mix in the usual sense. The right test is whether the mirror against Phoenix Insurance still works cleanly: are deposit terms matched to debt terms, are issuance costs actually reimbursed, and are credit-loss provisions still small. As of 2025 the answer is mostly yes, but one line should not be ignored: the expected credit-loss provision on the deposit rose to NIS 6.233 million from NIS 4.806 million at the end of 2024. That is still small relative to the deposit, but it is a reminder that even in a matched structure, the asset is not treated as risk-free.

Cash Flow, Debt and Capital Structure

all-in cash flexibility, here the important number is zero

For a normal company, one can debate whether the right cash frame is normalized cash generation before growth spending or all-in cash after real uses of cash. Here there is hardly any debate. The right frame is all-in cash flexibility, because the company's entire purpose is to pass funding proceeds into a subordinated deposit at the parent. According to the cash-flow statement, there was no net cash from operations. Financing activity generated NIS 1.103 billion, and investing activity absorbed the exact same NIS 1.103 billion. Cash and cash equivalents therefore stayed at just NIS 7 thousand.

That is one of the most important numbers in the report precisely because it is easy to miss. 2025 expanded the balance sheet, expanded the debt, expanded the deposit, and also increased accounting equity. But at the level of free cash inside the issuer, almost nothing changed. So any description of the company as having "generated cash" would be wrong. What it really did was increase its claim on the parent.

The debt schedule looks near, but the footnote matters

Another non-obvious point sits in Note 7. The schedule of principal and interest maturities is presented under an early-redemption assumption. That means the near-term amounts are not necessarily a hard contractual maturity wall already locked in. They also reflect first call dates built into the instruments.

The point here is not that the debt is far away and therefore harmless. Quite the opposite. The market should assume that the company and the group will want to refinance part of the stack at those first economic call points if debt markets remain open. But it does change the reading. The NIS 788.5 million of principal shown for 2026 is not just a natural final maturity wall. It is largely a function of instruments that were designed with early-call dates in mind.

What really supports investors

The real support for bondholders is not a classic security package. Note 12 states that Phoenix Insurance undertook vis-a-vis the trustee to meet the payment terms of principal and interest, and that this undertaking cannot be revoked or amended because third-party rights depend on it. At the same time, issuance proceeds are deposited with Phoenix Insurance in a subordinated deposit under identical repayment and interest terms.

That sounds strong, but there is an important friction inside it. The deferred deposit ranks pari passu with the subordinated notes and bonds issued or to be issued by Phoenix Insurance, and it is subordinated to Phoenix Insurance's other obligations. So even though the structure is matched, the issuer's asset is not a senior bank deposit. It is a subordinated claim inside the parent insurer.

The collateral picture does not help either. Note 7 explicitly states that series 5 through 18 are not secured by collateral or liens of any kind. Moreover, the company may issue additional series on better, equal, or weaker terms. This is not a new red flag, but it is a reminder that what holds the story together is the group's credit strength and the regulatory framework, not a ring-fenced asset pool at the issuer.

Outlook

Finding 1: The rise in equity to NIS 146.5 million is not a new cash cushion. The report itself ties it mainly to the fair-value remeasurement of the deferred deposit against series 12.

Finding 2: In cash terms, 2025 was almost completely neutral at the issuer level. Funding proceeds moved straight into the deposit, and cash remained negligible.

Finding 3: Phoenix Insurance's solvency ratio looks strong even without transitional measures, 152% as of June 30, 2025 and 157% after capital actions, but the board has already raised the minimum target without transitional measures to 123%. So the cushion is comfortable, but it is being managed against a rising floor.

Finding 4: The NIS 420 million of distributions approved after year end show that the cushion is not sitting idle at Phoenix Insurance. It is being actively managed through the group.

Finding 5: The report's sensitivity test shows that a 50 basis-point drop in the risk-free curve, based on the December 31, 2024 solvency calculation, would reduce the solvency ratio by about 11%. That is a reminder that the cushion depends on the curve as much as on issuance activity.

2026 looks like a capital-stabilization year

The company does not give guidance in the normal sense, and that makes sense. This is not an insurer or an operating company that should be talking about sales, premiums, or retention. The right question is what kind of year lies ahead for the group and for the funding vehicle. The answer is that 2026 looks much more like a capital-stabilization year than a growth year. The new funding layers were already built in 2025. From here, the market will judge whether those layers still hold after distributions, rate moves, and any regulatory changes.

The positive side is that the capital framework looks supportive for now. The solvency ratio stood at 178% as of June 30, 2025, or 182% after capital actions. Without transitional measures it stood at 152%, or 157% after those actions. That is not a tight margin. In addition, Phoenix Insurance's target range during the transitional period is 150% to 170%, so the 179% September estimate still sits above the range rather than merely inside it.

The less clean side is that the market should not focus only on the solvency ratio with transitional measures. The report itself devotes substantial attention to the ratio without those measures, and that is the more relevant lens for long-term resilience. The floor there is already 123%, and the upstream distributions show that the group does not intend to leave every bit of cushion sitting inside the insurer. So what will matter in 2026 is not whether the ratio stays above 100%, but how much real room remains above the 123% floor after distributions, market moves, and regulatory drift.

That chart sharpens what the issuer's own profit line cannot tell. The real cushion that matters sits inside Phoenix Insurance. That is also why Moody's February 2026 upgrade to A3 stable is a more important external signal than whether the funding vehicle's net profit rose or fell by a few million shekels.

What could change the market read in the near to medium term

The first factor is distribution policy. If solvency remains comfortable without transitional measures even after the NIS 420 million of approved distributions, the market will read that as evidence that the 2025 funding actions genuinely improved the group's capital flexibility. If instead the cushion starts shrinking too quickly and each new issuance merely fills a fresh gap, the read will become much less clean.

The second factor is the rate and liquidity backdrop. The report shows that a 50 basis-point move in the risk-free curve can materially hit the solvency ratio. That does not mean every curve move will translate linearly into the same result, and the report itself says the sensitivity is not necessarily linear. But it does mean the cushion is market-sensitive, not fixed.

The third factor is the regulatory recognition of the capital instruments. As long as series 12 and 18 keep full additional tier 1 recognition and series 9 through 17 keep tier 2 recognition, the structure works. If that recognition changes for the worse, the indentures themselves allow for early redemption in some cases. That mechanism is helpful, but it also underlines that the value created here is regulatory as much as it is financial.

The fourth factor is whether Phoenix Insurance can keep reporting comfortable headroom even without a benign market backdrop. The report discusses a stochastic model that is expected to support the solvency ratio in the future, but the company explicitly says it cannot yet quantify the effect. That is a positive signal, but not one on which a clean thesis should already rely.

What has to happen over the next 2 to 4 quarters

For the thesis to hold, four things need to happen. First, Phoenix Insurance has to maintain a healthy margin above the 123% floor without transitional measures even after further distributions and curve volatility. Second, debt markets need to remain open enough to let the group refinance and call instruments at economically rational dates. Third, there must be no regulatory change that weakens the recognition of RT1 or tier 2 instruments. Fourth, the external signals, ratings, solvency disclosures, and sensitivity tests, need to stay consistent with the relatively comfortable end-2025 picture.

What would weaken the thesis is equally clear: fast erosion in the ratio without transitional measures, overly aggressive distributions while the margin is narrowing, or a shift in investor attention from refinancing to actual loss absorption in the RT1 layer. In this structure, that shift could happen quickly because the write-down and coupon-deferral mechanics are explicit rather than theoretical.

Risks

The main risk sits at the parent, not the issuer

The company states explicitly that Phoenix Insurance's repayment ability and financial strength are the main factor behind the issuer's ability to repay its obligations. That is not boilerplate. It is the core risk statement. The balance sheet of Phoenix Capital Raising does not diversify risk. It concentrates it onto Phoenix Insurance.

That is why the fact that the issuer itself has almost no direct market-risk exposure should not be mistaken for safety. The risk has been moved inward into the deferred deposit, and that deposit is tied directly to Phoenix Insurance's ability to remain solvent and well capitalized.

RT1 is not ordinary debt

Series 12 and 18 are not just long-dated bonds. They carry explicit loss-absorption features. Principal and coupon can be deferred under deferral circumstances, and principal can be written down or converted into ordinary shares if, among other things, the insurer's equity is below the required level, the solvency ratio is below 75%, or the auditor flags material going-concern uncertainty.

That matters because a superficial read can easily lump all of the instruments together as "group debt." In practice, the risk profile of tier 2 instruments is very different from the RT1 layer. Since 2025 enlarged that RT1 layer through series 18, the question is no longer only whether the group can pay. It is also at what point the instruments themselves require investors to absorb stress.

There is no collateral, and the deposit still carries measured credit risk

None of the series is secured by collateral. That means investors rely on the structure, the undertaking by Phoenix Insurance, and the parent's credit quality. The expected-credit-loss provision on the deposit, which rose to NIS 6.233 million, is also a reminder that the issuer itself does not treat the deposit as a risk-free asset. This is not an immediate problem, but it is not something that should be glossed over either.

Market and regulatory conditions can change the picture quickly

The report itself says that the September 30, 2025 solvency estimate does not include every change that occurred between October 2025 and the publication date, including shifts in the curve, liquidity premiums, and the regulatory environment. That is an important disclosure. It means that even when the cushion looks comfortable, it still depends on variables that can move relatively quickly.

An operating company can sometimes offset a tougher market with better business performance. This vehicle cannot. If the market becomes less friendly or the regulatory regime becomes less accommodating, the impact will come straight through solvency headroom, refinancing terms, and investor pricing of the capital layers.

Conclusions

The story of 2025 is not the story of a company that became operationally stronger. It is the story of a funding conduit that widened the issuance pipe, replaced an older layer of debt, and added a new RT1 layer, while the real protection still sat inside Phoenix Insurance. What supports the thesis right now is solid capital-market access, a solvency ratio that still looks comfortable, and an external ratings upgrade. What keeps it from becoming cleaner is that the issuer still does not have a meaningful standalone cushion, and the whole structure still depends on the parent's credit strength, regulation, and distribution choices.

Current thesis in one line: Phoenix Capital Raising ended 2025 as a stronger funding tool for the group, but not as a standalone credit with its own cushion, so the risk has to be read through Phoenix Insurance's solvency and regulation rather than through the issuer's profit line.

What changed versus the prior balance-sheet shape is that the vehicle is no longer leaning mainly on legacy series and one RT1 instrument. It now sits on a broader capital stack that includes large tier 2 issuance, the full redemption of series 8, and a new RT1 layer through series 18. What did not change is that the value created here still remains accessible to investors only through Phoenix Insurance's resilience.

The strongest counter-thesis is that this is exactly how the structure is supposed to work. There is no need for a large standalone cushion at the issuer as long as the deposit terms mirror the debt terms, the parent's undertaking remains in force, and Phoenix Insurance keeps comfortable solvency ratios and market access. That is a serious argument. Its weakness is that in a stress case, the very instruments designed to strengthen capital are also the ones that can defer coupons or absorb losses.

What could change the market's interpretation in the short to medium term is a combination of three things: how much solvency headroom remains after distributions, how the rate and liquidity backdrop evolves, and whether the market continues to treat the group's RT1 and tier 2 instruments as attractive funding tools. This matters because in a vehicle like this, almost every shekel of value depends on whether capital markets and the regulator keep supporting the same structure.

What has to happen over the next 2 to 4 quarters for the thesis to strengthen is also clear: Phoenix Insurance must keep a comfortable margin above the 123% floor without transitional measures, debt markets must remain available at sensible prices, and the regulator must keep recognizing the structure as intended. What would weaken the thesis is just as clear: a rapid erosion of solvency, overly aggressive upstream distributions, or a shift in investor focus from refinancing to the actual loss-absorption point in the RT1 layer.