Man Group plc - Annual Report 2007

Risk mitigation
The liquidity risk management framework and significant related policies are reviewed and approved by the GRC, Board and ARCom and these bodies are informed monthly about the Group’s current and prospective liquidity conditions. They are also responsible for approving settlement limits for individual counterparties under delegated authorities approved by the Board.

The short-term tactical management of liquidity takes place largely within the businesses, which also provide Group Treasury with forecasts of their likely future cash flows and any requirements for funding from the Group’s central facilities.

The Group’s overall approach is to provide sufficient liquidity to be able to meet, from its available facilities and free cash balances under stressed scenarios, the planned requirements of the business to a 99% confidence level. More extreme liquidity stresses are to be met from other mechanisms under the Group’s control. The guiding principle is to ensure that funding (both directly to the Group and to the funds managed by the Group) is obtained from diverse markets and providers and with a range of maturities. This is to ensure a stable flow of financing and to provide protection in the event of market disruption.

The amount of the potential liquidity requirement is assessed through the scenario process discussed above. Group Treasury is responsible for securing the appropriate funding to meet this requirement.

The Group also has a contingency funding plan in place under which a Funding and Liquidity Taskforce would meet in circumstances of extreme liquidity stress to consider the actions that the Group should take to manage its funding requirements. These actions could include the recall of loans to funds which are, substantially, discretionary facilities repayable to the Group on demand. The plan was tested during the year using a hypothetical scenario involving substantial redemptions. The test was used to confirm the effectiveness of the contingency funding plan and also to identify and address any operational issues with its implementation.

The following table summarises the Group’s available facilities (drawn and undrawn) by maturity as at 31 March 2007 based on final expected maturity.

Maturity by period	Total $m	Less than 1 year $m	1-3 years $m	3-5 years $m	After 5 years $m
Short-term bank debt	433	433	–	–	–
Long-term bank debt	2,325	–	2,325	–	–
Exchangeable Bond	506	506	–	–	–
Senior Private Placement	300	45	145	60.5	49.5
Subordinated Private Placement	210	–	160	50	–
Subordinated FRN	400	–	–	400	–
Total facilities	4,174	984	2,630	510.5	49.5

Available liquidity
At 31 March 2007 the Group had total facilities of $4.17 billion (2006: $4.41 billion) of which $2.56 billion (2006: $2.67 billion) was unused. The bank credit facilities total $2.76 billion of which 89% are committed.

The tenor of the Group’s debt has changed over the past year with the passage of time, 23.5% of our debt now has a maturity of less than one year compared to 11% last year. If the separation of Brokerage proceeds as intended then both Asset Management and Brokerage will refinance their debt facilities. A refinancing of the Group’s syndicated facility in 2007 will once more extend the maturity profile.

At 31 March 2007 $2.075 billion of the syndicated facility was unused (2006: $2.275 billion). This facility expires in June 2009. There are no circumstances under which we would expect this facility would not be available for use.

During the year 38% of the Group’s £400 million seven year Exchangeable Bonds were converted, following an offer by the Group to pay a fixed cash sum to bondholders. The cost of the cash incentive offer amounted to $12 million, which has been expensed within the finance expense line of the income statement. The reduced amount of the bond of £248 million has a coupon of 3.75% and can be called by the Group from its fifth anniversary in November 2007 in certain circumstances. Its final maturity is in 2009.

The Group also has $300 million of senior debt by way of a private placement in the US, which has a series of maturities as shown in the table above.

The Group also has $610 million of subordinated debt which qualifies as Tier 2 capital for regulatory capital purposes. This is comprised a $400 million US dollar denominated subordinated FRN issued in September 2005 by Man Group plc and a total of $210 million subordinated Private Placements issued in March 2004 and August 2005. All of these new financings have 10 year final maturities with a call option at year 5. The Group also has uncommitted bilateral facilities of $190 million (2006: $334 million). These facilities are all on broadly similar terms to the main syndicated facility and are renewed annually.

External financing initiatives
There is an element of leverage in many of the private investor product structures and also in some of the products provided to institutional investors. The Group continues to arrange for provision of this requirement from external providers on behalf of these fund entities. The more temporary bridging funding requirements of fund entities are typically provided by the Group.

At 31 March 2007 the funds had borrowings from the Group totalling $0.4 billion (2006: $0.4 billion), a further $0.7 billion from two collateralised fund obligations (2006: $0.7 billion) and borrowings totalling $11.3 billion from 25 banks (2006: $8.1 billion). The Group, as a matter of policy, now seeks to pre-arrange the funding requirements for the private investor fund products, thus avoiding the need for the Group to provide the initial funding for funds shortly after launch.

The Group now seeks to obtain external funding without the requirement to provide any CPA to the third-party banks. At 31 March 2007 the CPAs in place in respect of third-party loans to funds amounted to $0.2 billion (2006: $1.0 billion).

Ratings
The Group’s long-term senior debt ratings are A- from Fitch Ratings and Baa1 from Moody’s, both with stable outlooks. During the year both Fitch and Moody’s reaffirmed their ratings. The Group aims to maintain a rating of at least BBB+/Baa1 over the long-term.

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