MetLife 2012 Annual Report Download - page 175

MetLife, Inc.
Notes to the Consolidated Financial Statements — (Continued)
Inc.’s 5.70% senior notes due 2035 (the “Senior Notes”). As a result of the issuance of MetLife, Inc.’s 10.750% Fixed-to-Floating Rate Junior
Subordinated Debentures due 2069 (the “10.750% JSDs”), the 10.750% JSDs became the Covered Debt with respect to, and in accordance with, the
terms of the RCC relating to MetLife, Inc.’s 6.40% Fixed-to-Floating Rate Junior Subordinated Debentures due 2066. The Senior Notes continue to be
the Covered Debt with respect to, and in accordance with, the terms of the RCCs relating to each of MetLife Capital Trust IV’s 7.875% Fixed-to-Floating
Rate Exchangeable Surplus Trust Securities, MetLife Capital Trust X’s 9.250% Fixed-to-Floating Rate Exchangeable Surplus Trust Securities and the
10.750% JSDs. MetLife, Inc. also entered into a replacement capital obligation which will commence during the six month period prior to the scheduled
redemption date of each of the securities described above and under which MetLife, Inc. must use reasonable commercial efforts to raise replacement
capital to permit repayment of the securities through the issuance of certain qualifying capital securities.
Interest expense on outstanding junior subordinated debt securities was $258 million for each of the years ended December 31, 2012, 2011 and
2010.
15. Common Equity Units
Acquisition of ALICO
In connection with the financing of the ALICO Acquisition in November 2010, MetLife, Inc. issued to AM Holdings 40.0 million common equity units
with an aggregate stated amount at issuance of $3.0 billion and an estimated fair value of $3.2 billion. Each common equity unit has an initial stated
amount of $75 per unit and initially consists of: (i) the Purchase Contracts, obligating the holder to purchase, on a subsequent settlement date, a
variable number of shares of MetLife, Inc. common stock, par value $0.01 per share, for a purchase price of $25 ($75 in the aggregate); and (ii) a 1/40
undivided beneficial ownership interest in each of three series of Debt Securities issued by MetLife, Inc., each series of Debt Securities having an
aggregate principal amount of $1.0 billion. Distributions on the common equity units will be made quarterly, and will consist of contract payments on the
Purchase Contracts and interest payments on the Debt Securities, at an aggregate annual rate of 5.00% of the stated amount at any time. The excess
of the estimated fair value of the common equity units over the estimated fair value of the Debt Securities (see Note 12), after accounting for the present
value of future contract payments recorded in other liabilities, resulted in a net decrease to additional paid-in capital of $69 million, representing the fair
value of the Purchase Contracts discussed below. On March 8, 2011, AM Holdings sold, in a public offering, all the common equity units it received as
consideration from MetLife in connection with the ALICO Acquisition. The common equity units are listed on the New York Stock Exchange (“NYSE”).
Purchase Contracts
Settlement of the Purchase Contracts of each series will occur upon the successful remarketing of the related series of Debt Securities, or upon a
final failed remarketing of the related series, as described below under “—Debt Securities.” On each settlement date subsequent to a successful
remarketing, the holder will pay $25 per common equity unit and MetLife, Inc. will issue to such holder a variable number of shares of its common stock
in settlement of the applicable Purchase Contract. The number of shares to be issued will depend on the average of the daily volume-weighted average
prices of MetLife, Inc.’s common stock during the 20 trading day periods ending on, and including, the third day prior to the initial scheduled settlement
date for each series of Purchase Contracts. The Series C Purchase Contracts have been settled as described in “— Remarketing of Debt Securities
and Settlement of Purchase Contracts.” The initially-scheduled settlement dates for the remaining contracts are September 11, 2013 for the Series D
Purchase Contracts and October 8, 2014 for the Series E Purchase Contracts. If the average value of MetLife, Inc.’s common stock as calculated
pursuant to the stock purchase agreement dated as of March 7, 2010, as amended, by and among MetLife, Inc., AIG and AM Holdings (the “Stock
Purchase Agreement”) during the applicable 20 trading day period is less than or equal to $35.42, as such amount may be adjusted (the “Reference
Price”), the number of shares to be issued in settlement of the Purchase Contract will equal $25 divided by the Reference Price, as calculated pursuant
to the Stock Purchase Agreement (the “Maximum Settlement Rate”). If the market value of MetLife, Inc.’s common stock is greater than or equal to
$44.275, as such amount may be adjusted (the “Threshold Appreciation Price”), the number of shares to be issued in settlement of the Purchase
Contract will equal $25 divided by the Threshold Appreciation Price, as so calculated (the “Minimum Settlement Rate”). If the market value of MetLife,
Inc.’s common stock is greater than the Reference Price and less than the Threshold Appreciation Price, the number of shares to be issued will equal
$25 divided by the applicable market value, as so calculated. In the event of an unsuccessful remarketing of any series of Debt Securities and the
postponement of settlement to a later date, the average market value used to calculate the settlement rate for a particular series will not be recalculated,
although certain corporate events may require adjustments to the settlement rate. After settlement of the remaining Purchase Contracts, MetLife, Inc. will
receive proceeds of $2.0 billion and issue between 45.2 million and 56.5 million shares of its common stock, subject to certain adjustments, in addition
to the proceeds received and shares issued upon settlement of the Series C Purchase Contracts in October 2012. The holder of a common equity unit
may, at its option, settle the related Purchase Contracts before the applicable settlement date. However, upon early settlement, the holder will receive
the Minimum Settlement Rate.
Distributions on the Purchase Contracts will be made quarterly at an average annual rate of 3.02%. The value of the Purchase Contracts at issuance
of $247 million was calculated as the present value of the future contract payments and was recorded in other liabilities with an offsetting decrease in
additional paid-in capital. The other liabilities balance will be reduced as contract payments are made. Contract payments of $84 million and
$102 million were made for the years ended December 31, 2012 and 2011, respectively.
Debt Securities
The Debt Securities are senior, unsecured notes of MetLife, Inc. which, in the aggregate, pay quarterly distributions at an initial average annual rate of
1.98% and are included in long-term debt (see Note 12 for further discussion of terms). The Debt Securities are pledged as collateral to secure the
obligations of each common equity unit holder under the related Purchase Contracts. Each series of the Debt Securities will be subject to a remarketing
and sold on behalf of participating holders to investors. The proceeds of a remarketing, net of any related fees, will be applied on behalf of participating
holders who so elect to settle any obligation of the holder to pay cash under the related Purchase Contract on the applicable settlement dates. The
Series C Purchase Contracts have been settled as described in “— Remarketing of Debt Securities and Settlement of Purchase Contracts.” The initially-
scheduled settlement dates for the remaining contracts are September 11, 2013 for the Series D Debt Securities and October 8, 2014 for the Series E
Debt Securities, subject to delay if there are one or more unsuccessful remarketings. If the initial attempted remarketing of a series is unsuccessful, up
to two additional remarketing attempts will occur. At the remarketing date, the remarketing agent may reset the interest rate on the Debt Securities,
subject to a reset cap for each of the first two attempted remarketings of each series. If a remarketing is successful, the reset rate will apply to all
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