MetLife 2008 Annual Report Download - page 190

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 2007 Trust Securities of $10 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 2007 Trust Securities until their scheduled redemption. Interest expense on the 2007 Trust Securities was $55 million and $3 million, for
the years ended December 31, 2008 and 2007, respectively.
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. 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, $80 million and $2 million for the years ended
December 31, 2008, 2007 and 2006, respectively.
13. Common Equity Units
In connection with financing the acquisition of Travelers on July 1, 2005, which is 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 consisted 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 were junior subordinated
debentures issued by the Holding Company. As described in Note 12 and in the “Remarketing of Junior Subordinated Debentures and
Settlement of Stock Purchase Contracts” section which follows, the common equity units ceased to exist upon the closing of the
remarketing of the underlying debt instruments and the settlement of the stock purchase contracts in August 2008 and February 2009.
Common Equity Units
Each common equity unit had an initial stated amount of $25 per unit and consisted 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 “Capital Trusts”), with an initial liquidation amount of $1,000; and
(iii) a stock purchase contract under which the holder of the common equity unit agreed to purchase, and the Holding Company agreed to
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. After the closing of the first remarketing in August
2008, each common equity unit had a stated value of $12.50, rather than the initial stated amount of $25 per unit, and no longer included
any ownership interest in the Series A Trust.
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 debentures 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 Capital Trusts and $64 million in trust common securities issued equally by
the Capital Trusts. The common and preferred securities of the Capital Trusts, totaling $2,134 million, represented undivided beneficial
ownership interests in the assets of the Capital Trusts, had no stated maturity and were required to be redeemed upon maturity of the
corresponding series of junior subordinated debentures — the sole assets of the respective Capital Trusts. The Series A Trust and Series B
Trust made quarterly distributions on the common and preferred securities when due at an annual rate of 4.82% and 4.91%, respectively,
until they were dissolved in August 2008 and February 2009, respectively.
The trust common securities, which were held by the Holding Company, represented a 3% interest in the Capital Trusts and were
reflected as fixed maturity securities in the consolidated balance sheet of MetLife, Inc. The Capital Trusts were VIEs in accordance with
FIN 46(r), and the Company did not consolidate its interest in MetLife Capital Trusts II and III as it was not the primary beneficiary of either of
the Capital Trusts.
As described in Note 12, upon dissolution of MetLife Capital Trusts II and III, $64 million of the junior subordinated debentures were
returned to the Holding Company concurrently with the cancellation the $64 million of trust common securities of MetLife Capital Trust II
F-67MetLife, Inc.
MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)