MetLife 2007 Annual Report Download - page 145

At December 31, 2007, the Company held assets in trust of $899 million associated with the transaction. In addition the Company held
$50 million in custody as of December 31, 2007. The Company’s consolidated balance sheets include the assets of Timberlake Financial
recorded as fixed maturity securities and other invested assets, which consists of the restricted cash and cash equivalents held in custody.
The Company’s consolidated statements of income include the investment returns on the assets held as collateral as investment income
and the interest on the notes is included as a component of other expenses.
Issuance costs associated with the offering of the notes of $13 million have been capitalized, are included in other assets, and are
amortized using the effective interest method over the estimated life of the notes. Total interest expense was $52 million and $26 million for
the years ended December 31, 2007 and 2006, respectively.
12. Junior Subordinated Debentures
Junior Subordinated Debentures Underlying Common Equity Units
In connection with the acquisition of Travelers on July 1, 2005, the Holding Company issued on June 21, 2005 $1,067 million 4.82%
Series A and $1,067 million 4.91% Series B junior subordinated debentures due no later than February 15, 2039 and February 15, 2040,
respectively, for a total of $2,134 million in connection with the common equity units more fully described in Note 13. Interest expense
related to the junior subordinated debentures underlying common equity units was $104 million, $104 million and $55 million for the years
ended December 31, 2007, 2006 and 2005, respectively.
Other Junior Subordinated Debentures Issued by the Holding Company
In December 2006, the Holding Company issued junior subordinated debentures with a face amount of $1.25 billion. The debentures
are scheduled for redemption on December 15, 2036; the final maturity of the debentures is December 15, 2066. The Holding Company
may redeem the debentures (i) in whole or in part, at any time on or after December 15, 2031 at their principal amount plus accrued and
unpaid interest to the date of redemption, or (ii) in certain circumstances, in whole or in part, prior to December 15, 2031 at their principal
amount plus accrued and unpaid interest to the date of redemption or, if greater, a make-whole price. Interest is payable semi-annually at a
fixed rate of 6.40% up to, but not including, December 15, 2036, the scheduled redemption date. In the event the debentures are not
redeemed on or before the scheduled redemption date, interest will accrue at an annual rate of 3-month LIBOR plus a margin equal to
2.205%, payable quarterly in arrears. The Holding Company has the right to, and in certain circumstances the requirement to, defer interest
payments on the debentures for a period up to ten years. Interest compounds during such periods of deferral. If interest is deferred for
more than five consecutive years, the Holding Company may be required to use proceeds from the sale of its common stock or warrants on
common stock to satisfy its obligation. In connection with the issuance of the debentures, the Holding Company entered into a
replacement capital covenant (“RCC”). As part of the RCC, the Holding Company agreed that it will not repay, redeem, or purchase
the debentures on or before December 15, 2056, unless, subject to certain limitations, it has received proceeds from the sale of specified
capital securities. The RCC will terminate upon the occurrence of certain events, including an acceleration of the debentures due to the
occurrence of an event of default. The RCC is not intended for the benefit of holders of the debentures and may not be enforced by them.
The RCC is for the benefit of holders of one or more other designated series of its indebtedness (which will initially be its 5.70% senior
notes due June 15, 2035). The Holding Company also entered into a replacement capital obligation which will commence in 2036 and
under which the Holding Company must use reasonable commercial efforts to raise replacement capital through the issuance of certain
qualifying capital securities. Issuance costs associated with the offering of the debentures of $13 million have been capitalized, are
included in other assets, and are amortized using the effective interest method over the period from the issuance date of the debentures
until their scheduled redemption. Interest expense on the debentures was $80 million and $2 million for the years ended December 31,
2007 and 2006, respectively.
In December 2007, MetLife Capital Trust IV (“Trust IV”), a VIE consolidated by the Company, issued exchangeable surplus trust
securities (the “Trust Securities”) with a face amount of $700 million and a discount of $6 million ($694 million). The Trust Securities will be
exchanged into a like amount of Holding Company junior subordinated debentures on December 15, 2037, the scheduled redemption
date; mandatorily under certain circumstances; and at any time upon the Holding Company exercising its option to redeem the securities.
The Trust Securities will be exchanged for junior subordinated debentures prior to repayment. The final maturity of the debentures is
December 15, 2067. The Holding Company may cause the redemption of the Trust Securities or debentures (i) in whole or in part, at any
time on or after December 15, 2032 at their principal amount plus accrued and unpaid interest to the date of redemption, or (ii) in certain
circumstances, in whole or in part, prior to December 15, 2032 at their principal amount plus accrued and unpaid interest to the date of
redemption or, if greater, a make-whole price. Interest on the Trust Securities or debentures is payable semi-annually at a fixed rate of
7.875% up to, but not including, December 15, 2037, the scheduled redemption date. In the event the Trust Securities or debentures are
not redeemed on or before the scheduled redemption date, interest will accrue at an annual rate of 3-month LIBOR plus a margin equal to
3.96%, payable quarterly in arrears. The Holding Company has the right to, and in certain circumstances the requirement to, defer interest
payments on the Trust Securities or debentures for a period up to ten years. Interest compounds during such periods of deferral. If interest
is deferred for more than five consecutive years, the Holding Company may be required to use proceeds from the sale of its common stock
or warrants on common stock to satisfy its obligation. In connection with the issuance of the Trust Securities, the Holding Company entered
into a RCC. As a part of the RCC, the Holding Company agreed that it will not repay, redeem, or purchase the debentures on or before
December 15, 2057, unless, subject to certain limitations, it has received proceeds from the sale of specified capital securities. The RCC
will terminate upon the occurrence of certain events, including an acceleration of the debentures due to the occurrence of an event of
default. The RCC is not intended for the benefit of holders of the debentures and may not be enforced by them. The RCC is for the benefit
of holders of one or more other designated series of its indebtedness (which will initially be its 5.70% senior notes due June 15, 2035). The
Holding Company also entered into a replacement capital obligation which will commence in 2037 and under which the Holding Company
must use reasonable commercial efforts to raise replacement capital through the issuance of certain qualifying capital securities. Issuance
costs associated with the offering of the Trust Securities of $10 million have been capitalized, are included in other assets, and are
F-49MetLife, Inc.
MetLife, Inc.
Notes to Consolidated Financial Statements — (Continued)