Mercury Insurance 2010 Annual Report Download - page 92

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MERCURY GENERAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS—(Continued)
6. Notes Payable
Notes Payable consists of the following:
December 31,
2010 2009
(Amounts in thousands)
Unsecured notes ................................................ $129,210 $133,397
Secured notes ................................................... 138,000 138,000
Total ..................................................... $267,210 $271,397
Effective January 1, 2009, the Company acquired AIS for $120 million. The acquisition was financed by a
$120 million credit facility that is secured by municipal bonds held as collateral. The credit facility calls for the
collateral requirement to be greater than the loan amount. The collateral requirement is calculated as the fair
market value of the municipal bonds held as collateral multiplied by the advance rates, which vary based on the
credit quality and duration of the assets held and range between 75% and 100% of the fair value of each bond.
The loan matures on January 1, 2012 with interest payable at a floating rate of LIBOR rate plus 125 basis points.
In February 2008, the Company acquired an 88,300 square foot office building in Folsom, California for
approximately $18.4 million. The Company financed the transaction through an $18 million bank loan that is
secured by municipal bonds held as collateral. The loan matures on March 1, 2013 with interest payable quarterly
at an annual floating rate of LIBOR plus 50 basis points.
On August 7, 2001, the Company completed a public debt offering issuing $125 million of senior notes. The
notes are unsecured, senior obligations of the Company with a 7.25% annual coupon payable on August 15 and
February 15 each year commencing February 15, 2002. These notes mature on August 15, 2011. The Company
used the proceeds from the senior notes to retire amounts payable under existing revolving credit facilities, which
were terminated. The Company incurred debt issuance costs of approximately $1.3 million, inclusive of
underwriter’s fees. These costs are deferred and then amortized as a component of interest expense over the term
of the notes. The notes were issued at a slight discount of 99.723%, resulting in the effective annualized interest
rate including debt issuance costs of approximately 7.44%.
The aggregated maturities for notes payable are as follows:
Year Maturity
(Amounts in thousands)
2011 ................................................... $125,000
2012 ................................................... $120,000
2013 ................................................... $ 18,000
On December 16, 2010, the California DOI notified the Company that MCC was authorized to pay a $270
million extraordinary dividend to Mercury General in 2011. Mercury General intends to use a portion of the
proceeds from the dividend to repay the $125 million senior notes that mature on August 15, 2011.
For additional disclosures regarding methods and assumptions used in estimating fair values of interest rate
swap agreements associated with the Company’s loans listed above, see Note 7.
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