MetLife 2006 Annual Report Download - page 131

capitalized, are included in other assets, and will be amortized using the effective interest method over the period from the issuance date of
the junior subordinated debentures until their scheduled redemption.
Interest expense on the junior subordinated debentures was $27 million and $2 million for the years ended December 31, 2006 and
2005, respectively.
12. Common Equity Units
In connection with financing the acquisition of Travelers on July 1, 2005, which is more fully described in Note 2, the Holding Company
distributed and sold 82.8 million 6.375% common equity units for $2,070 million in proceeds in a registered public offering on June 21,
2005. As described below, the common equity units consist of interests in trust preferred securities issued by MetLife Capital Trusts II
and III, and stock purchase contracts issued by the Holding Company. The only assets of MetLife Capital Trusts II and III are junior
subordinated debentures issued by the Holding Company.
Common Equity Units
Each common equity unit has an initial stated amount of $25 per unit and consists of: (i) a 1/80 or 1.25% ($12.50), undivided beneficial
ownership interest in a series A trust preferred security of MetLife Capital Trust II (“Series A Trust”), with an initial liquidation amount of
$1,000; (ii) a 1/80 or 1.25% ($12.50), undivided beneficial ownership interest in a series B trust preferred security of MetLife Capital Trust III
(“Series B Trust” and, together with the Series A Trust, the “Trusts”), with an initial liquidation amount of $1,000; (iii) a stock purchase
contract under which the holder of the common equity unit will purchase and the Holding Company will sell, on each of the initial stock
purchase date and the subsequent stock purchase date, a variable number of shares of the Holding Company’s common stock, par value
$0.01 per share, for a purchase price of $12.50.
Junior Subordinated Debentures Issued to Support Trust Common and Preferred Securities
The Holding Company issued $1,067 million 4.82% Series A and $1,067 million 4.91% Series B junior subordinated debt securities due
no later than February 15, 2039 and February 15, 2040, respectively, for a total of $2,134 million, in exchange for $2,070 million in
aggregate proceeds from the sale of the trust preferred securities by the Trusts and $64 million in trust common securities issued equally
by the Trusts. The common and preferred securities of the Trusts, totaling $2,134 million, represent undivided beneficial ownership
interests in the assets of the Trusts, have no stated maturity and must be redeemed upon maturity of the corresponding series of junior
subordinated debt securities — the sole assets of the respective Trusts. The Series A and Series B Trusts will make quarterly distributions
on the common and preferred securities at an annual rate of 4.82% and 4.91%, respectively.
The trust common securities, which are held by the Holding Company, represent a 3% interest in the Trusts and are reflected as fixed
maturity securities in the consolidated balance sheet of MetLife, Inc. The Trusts are VIEs in accordance with FIN No. 46, Consolidation of
Variable Interest Entities — An Interpretation of Accounting Research Bulletin No. 51, and its December 2003 revision (“ FIN 46(r)”), and the
Company does not consolidate its interest in MetLife Capital Trusts II and III as it is not the primary beneficiary of either of the Trusts.
The Holding Company has directly guaranteed the repayment of the trust preferred securities to the holders thereof to the extent that
there are funds available in the Trusts. The guarantee will remain in place until the full redemption of the trust preferred securities. The trust
preferred securities held by the common equity unit holders are pledged to the Holding Company to collateralize the obligation of the
common equity unit holders under the related stock purchase contracts. The common equity unit holder may substitute certain zero
coupon treasury securities in place of the trust preferred securities as collateral under the stock purchase contract.
The trust preferred securities have remarketing dates which correspond with the initial and subsequent stock purchase dates to provide
the holders of the common equity units with the proceeds to exercise the stock purchase contracts. The initial stock purchase date is
expected to be August 15, 2008, but could be deferred for quarterly periods until February 15, 2009, and the subsequent stock purchase
date is expected to be February 15, 2009, but could be deferred for quarterly periods until February 15, 2010. At the remarketing date, the
remarketing agent will have the ability to reset the interest rate on the trust preferred securities to generate sufficient remarketing proceeds
to satisfy the common equity unit holder’s obligation under the stock purchase contract, subject to a reset cap for each of the first two
attempted remarketings of each series. The interest rate on the supporting junior subordinated debt securities issued by the Holding
Company will be reset at a commensurate rate. If the initial remarketing is unsuccessful, the remarketing agent will attempt to remarket the
trust preferred securities, as necessary, in subsequent quarters through February 15, 2009 for the Series A trust preferred securities and
through February 15, 2010 for the Series B trust preferred securities. The final attempt at remarketing will not be subject to the reset cap. If
all remarketing attempts are unsuccessful, the Holding Company has the right, as a secured party, to apply the liquidation amount on the
trust preferred securities to the common equity unit holders obligation under the stock purchase contract and to deliver to the common
equity unit holder a junior subordinated debt security payable on August 15, 2010 at an annual rate of 4.82% and 4.91% on the Series A
and Series B trust preferred securities, respectively, in payment of any accrued and unpaid distributions.
Stock Purchase Contracts
Each stock purchase contract requires the holder of the common equity unit to purchase, and the Holding Company to sell, for $12.50,
on each of the initial stock purchase date and the subsequent stock purchase date, a number of newly issued or treasury shares of the
Holding Company’s common stock, par value $0.01 per share, equal to the applicable settlement rate. The settlement rate at the
respective stock purchase date will be calculated based on the closing price of the common stock during a specified 20-day period
immediately preceding the applicable stock purchase date. If the market value of the Holding Company’s common stock is less than the
threshold appreciation price of $53.10 but greater than $43.35, the reference price, the settlement rate will be a number of the Holding
Company’s common stock equal to the stated amount of $12.50 divided by the market value. If the market value is less than or equal to the
reference price, the settlement rate will be 0.28835 shares of the Holding Company’s common stock. If the market value is greater than or
equal to the threshold appreciation price, the settlement rate will be 0.23540 shares of the Holding Company’s common stock.
Accordingly, upon settlement in the aggregate, the Holding Company will receive proceeds of $2,070 million and issue between
F-48 MetLife, Inc.
METLIFE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)