The Hartford 2008 Annual Report Download - page 452

Table of Contents
THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
14. Debt (continued)
The Federal Reserve Board authorized the Commercial Paper Funding Facility (“CPFF”) on October 7, 2008 under
Section 13(3) of the Federal Reserve Act to provide a liquidity backstop to U.S. issuers of commercial paper. The CPFF is
intended to improve liquidity in short-term funding markets by increasing the availability of term commercial paper funding
to issuers and by providing greater assurance to both issuers and investors that firms will be able to roll over their maturing
commercial paper.
The Company registered with the CPFF in order to sell up to a maximum of $375 to the facility of which it has issued the
full amount as of December 31, 2008. The Company’s commercial paper must be rated A-1/P-1/F1 by at least two ratings
agencies to be eligible for the program. In the first quarter of 2009, Moody’s, S&P and Fitch downgraded the Company’s
commercial paper rating, rendering the Company ineligible to sell additional commercial paper under the CPFF program
going forward. As a result, the Company will be required to pay the commercial paper issued under the CPFF program upon
maturity.
While The Hartford’s maximum borrowings available under its commercial paper program are $2.0 billion, which includes
the $375 from the CPFF, the Company is dependent upon market conditions, including recent market conditions, to finance
the remaining available commercial paper with investors.
Consumer Notes
Institutional began issuing consumer notes through its Retail Investor Notes Program in September 2006. A consumer note
is an investment product distributed through broker-dealers directly to retail investors as medium-term, publicly traded fixed
or floating rate, or a combination of fixed and floating rate, notes. Consumer notes are part of the Company’s spread-based
business and proceeds are used to purchase investment products, primarily fixed rate bonds. Proceeds are not used for
general operating purposes. Consumer notes maturities may extend up to 30 years and have contractual coupons based upon
varying interest rates or indexes (e.g. consumer price index) and may include a call provision that allows the Company to
extinguish the notes prior to its scheduled maturity date. Certain Consumer notes may be redeemed by the holder in the
event of death. Redemptions are subject to certain limitations, including calendar year aggregate and individual limits. The
aggregate limit is equal to the greater of $1 or 1% of the aggregate principal amount of the notes as of the end of the prior
year. The individual limit is $250 thousand per individual. Derivative instruments are utilized to hedge the Company’s
exposure to market risk in accordance with Company policy.
As of December 31, 2008 and 2007, $1,210 and $809, respectively, of consumer notes were outstanding. As of
December 31, 2008, these consumer notes have interest rates ranging from 4.0% to 6.3% for fixed notes and, for variable
notes, based on December 31, 2008 rates, notes indexed to the consumer price index plus 80 to 267 basis points, or indexed
to the S&P 500, Dow Jones Industrials, foreign currency, or the Nikkei 225. The aggregate maturities of consumer notes are
as follows: $11 in 2009, $30 in 2010, $131 in 2011, $291 in 2012 and $751 thereafter. For 2008 and 2007, interest credited
to holders of consumer notes was $59 and $11, respectively. During 2008, the Company made the decision to discontinue
future issuances of consumer notes, this decision does not impact consumer notes currently outstanding.
F-80
Source: HARTFORD FINANCIAL S, 10-K, February 12, 2009