Phoenix Capital Raising: When Series 12 and 18 Actually Defer Coupons or Write Down Principal
The main article showed that the RT1 risk sits in Phoenix Insurance's solvency, not in the issuer's standalone earnings. This continuation maps the trigger ladder in the contract itself: coupons can be deferred under a relatively broad deferral basket, while principal write-down or conversion sits behind three narrower stress events, including a solvency ratio below 75%.
The main article already argued that the RT1 layer, additional tier 1 capital, is the point where investors stop being just long-dated lenders and start sharing part of Phoenix Insurance's loss-absorption burden. This continuation isolates only the contractual question: when do series 12 and 18 actually stop behaving like ordinary debt.
The short answer is simple: 75% is not the coupon line. It is the principal-loss line. Coupon or principal deferral can arrive earlier, because Note 7 gives series 12 and 18 a wider basket of deferral circumstances. Only after that comes the harder step, principal write-down or conversion into ordinary shares.
75% is a write-down threshold, not a coupon threshold
Note 7 is explicit that the additional tier 1 terms of series 12 and 18 include loss-absorption mechanisms, but it also separates two very different stages. The first stage is deferral of principal and or interest payments. The second stage is principal write-down or conversion into ordinary shares.
| Layer | What triggers it | What it applies to | Why it matters |
|---|---|---|---|
| Deferral of principal and or interest | No distributable profits at the issuer, Phoenix Insurance recognized equity falling below required capital, a board decision that Phoenix Insurance is at close risk of missing required capital with the supervisor's approval, or a supervisor order after a significant hit to recognized capital or a close-risk assessment | Series 12 and 18 | The coupon can stop before the hard write-down threshold is reached |
| Treatment of deferred principal | Principal not paid because of deferral circumstances does not accrue default interest and becomes payable only after the circumstances end, by decision of the insurer's board and with prior supervisor approval | Series 12 and 18 | Deferral is a contractual stress tool, not a routine payment delay |
| Principal write-down or conversion | Insurer equity below required capital without a capital replenishment, solvency ratio below 75% without a replenishment, or an auditor emphasis on material going-concern uncertainty | Series 12 and 18 | This is the point where the holder moves from delayed payment to actual loss absorption |
That order is the key point. The 75% trigger appears only in the write-down stage. Anyone reading RT1 as if "the coupon is safe as long as solvency stays above 75%" is missing the earlier contractual layer. Note 7 says plainly that principal and or interest can be deferred because distributable profits disappear at the issuer, because Phoenix Insurance's recognized capital falls below required capital, or because the board or the supervisor decides that capital pressure is becoming too close for comfort.
That is not a drafting nuance. It is the order of pain. Payment can stop first. Only after that, if one of the three harder events occurs, can principal itself be written down or converted.
Principal loss sits behind a much narrower set of events
Here too the filing is very clear. Principal write-down or conversion into ordinary shares does not depend on market volatility, spread widening, or a general sense of stress. All three triggers are tied to published financial disclosure by the insurer:
- Under the prior published financial statements, the insurer's equity is below required capital and the shortfall has not been replenished by the publication date of the latest report.
- Under the latest published financial statements, the solvency ratio is below 75% and the shortfall has not been replenished.
- In the audit opinion or review report attached to the latest financial statements, the auditor draws attention to material doubt about the insurer's ability to continue as a going concern.
For the holder, that means the write-down mechanism is a disclosure-and-regulation mechanism, not a market-price mechanism. Bond spreads can move far earlier than that, but the contractual step that actually writes down principal sits on regulatory capital tests and on the language of the published accounts.
Series 12 also reveals one important nuance more explicitly than the generic RT1 section. In the description of the series, the company says that if, after a write-down, Phoenix Insurance's recognized capital rises above the SCR, the solvency capital requirement, the company may, at its own discretion and subject to prior supervisor approval, announce a partial or full restoration of principal. That is not an automatic recovery tool. It is an option, not a holder entitlement, and it depends both on capital improvement and on regulatory approval.
Series 12 and 18 share the same trigger ladder, not the same economics
Note 7 writes the RT1 mechanism at the basket level for series 12 and 18, so the deferral and write-down ladder is the same. Economically, though, these are not the same line repeated.
| Item | Series 12 | Series 18 |
|---|---|---|
| Main issuance date | August 2021, with an additional private expansion in November 2023 | October 2025 |
| Regulatory layer | Additional tier 1 | Additional tier 1 |
| Coupon | 2.09%, CPI-linked | 2.79%, CPI-linked |
| Coupon payment months | February and August | March and September |
| Stated repayment date in the filing | February 5, 2032 | September 30, 2036 |
| First early-redemption date in Note 7 | February 5, 2031 | September 30, 2036 |
The implication is that series 18 did not introduce a new RT1 legal structure. It extended the same loss-absorption logic into a new 2025 instrument. For holders, the difference between series 12 and 18 is not whether a write-down mechanism exists. It is how long they remain exposed to it and on what coupon.
Why this risk is already visible in the accounts before any credit event
This is where the accounting point matters too much to leave in a footnote. In the accounting-policy note, the company states that the financial statements are prepared on a cost basis, except for the deferred deposit against series 12, which is measured at fair value.
The explanation is precise. The deferred deposit linked to additional tier 1 is measured at fair value through profit and loss because the write-down potential means its contractual cash flows are not solely principal and interest. In other words, the same mechanism that absorbs losses in a stress case is also what breaks the SPPI test on the asset side. That is why the asset moves to fair value through profit and loss.
On the liability side, the company says the additional tier 1 instrument itself remains measured at amortized cost, because it concluded that the principal write-down triggers are not financial triggers that create an embedded derivative. That is an important accounting asymmetry: the asset moves to fair value, the liability stays at amortized cost.
In 2025 that asymmetry was already material. In the business review the company says it recorded NIS 133.105 million of fair-value income on a deferred deposit relating to tier 1 capital. That is exactly the point RT1 holders need to remember. Loss-absorption language is not a theoretical tail-risk paragraph waiting for a disaster. It already changes how profit and equity are presented at the issuer.
It is also important to stay precise. In the accounting-policy note, the explicit fair-value measurement language is written for the deposit backing series 12. The 2025 report does not restate that same formulation under the series 18 subheading with the same level of specificity. The conservative reading is therefore to stick to the distinction the company itself chose to write, rather than stretch it further than the evidence.
Bottom line for RT1 holders
Anyone holding series 12 and 18 should not watch only the 75% solvency line. That is the write-down line, not the coupon-deferral line. The real monitoring framework is broader and includes three layers: distributable profits at the issuing vehicle, recognized capital and required capital at Phoenix Insurance, and the language used by the regulator and the auditor around solvency and going concern.
That also explains why these instruments price differently from ordinary tier 2 debt. The holder is not paid only for time and rating. The holder is giving up part of the certainty of coupon and principal in exchange for the group's ability to have the instrument recognized as additional tier 1 capital. Once the trigger order is clear, the logic of the instrument becomes clearer too: coupon can stop before principal is written down, and principal can be written down long before the holder has any reason to call this ordinary debt.
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