The Hartford 2011 Annual Report Download - page 206

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-71
14. Debt (continued)
Senior Notes
On October 17, 2011, The Hartford repaid its $400, 5.25% senior notes at maturity.
Junior Subordinated Debentures
On June 6, 2008, the Company issued $500 aggregate principal amount of 8.125% fixed-to-floating rate junior subordinated debentures
(the “8.125% debentures”) due June 15, 2068 for net proceeds of approximately $493, after deducting underwriting discounts and
expenses from the offering. The debentures bear interest at an annual fixed rate of 8.125% from the date of issuance to, but excluding,
June 15, 2018, payable semi-annually in arrears on June 15 and December 15. From and including June 15, 2018, the debentures will
bear interest at an annual rate, reset quarterly, equal to three-month LIBOR plus 4.6025%, payable quarterly in arrears on March 15,
June 15, September 15 and December 15 of each year. The Company has the right, on one or more occasions, to defer the payment of
interest on the debentures. The Company may defer interest for up to ten consecutive years without giving rise to an event of default.
Deferred interest will accumulate additional interest at an annual rate equal to the annual interest rate then applicable to the 8.125%
debentures. If the Company defers interest for five consecutive years or, if earlier, pays current interest during a deferral period, which
may be paid from any source of funds, the Company will be required to pay deferred interest from proceeds from the sale of certain
qualifying securities.
The 8.125% debentures carry a scheduled maturity date of June 15, 2038 and a final maturity date of June 15, 2068. During the 180-day
period ending on a notice date not more than fifteen and not less than ten business days prior to the scheduled maturity date, the
Company is required to use commercially reasonable efforts to sell certain qualifying replacement securities sufficient to permit
repayment of the debentures at the scheduled maturity date. If any 8.125% debentures remain outstanding after the scheduled maturity
date, the unpaid amount will remain outstanding until the Company has raised sufficient proceeds from the sale of qualifying
replacement securities to permit the repayment in full of the debentures. If there are remaining 8.125% debentures at the final maturity
date, the Company is required to redeem the 8.125% debentures using any source of funds.
Subject to the replacement capital covenant described below, the Company can redeem the 8.125% debentures at its option, in whole or
in part, at any time on or after June 15, 2018 at a redemption price of 100% of the principal amount being redeemed plus accrued but
unpaid interest. The Company can redeem the 8.125% debentures at its option prior to June 15, 2018 (a) in whole at any time or in part
from time to time or (b) in whole, but not in part, in the event of certain tax or rating agency events relating to the 8.125% debentures, at
a redemption price equal to the greater of 100% of the principal amount being redeemed and the applicable make-whole amount, in each
case plus any accrued and unpaid interest.
In connection with the offering of the 8.125% debentures, the Company entered into a "replacement capital covenant" for the benefit of
holders of one or more designated series of the Company's indebtedness, initially the Company’ s 6.1% notes due 2041. Under the terms
of the replacement capital covenant, if the Company redeems the 8.125% debentures at any time prior to June 15, 2048 it can only do so
with the proceeds from the sale of certain qualifying replacement securities.
On October 17, 2008, the Company entered into an Investment Agreement (the “Investment Agreement”), with Allianz SE (“Allianz”)
under which, among other things, the Company agreed to issue and sell $1.75 billion of the Company’ s 10% Fixed-to-Floating Rate
Junior Subordinated Debentures due 2068 (the “10% debentures”) in a private placement to Allianz.
The 10% debentures due 2068 bear interest at an annual fixed rate of 10% from the date of issuance to, but excluding, October 15, 2018,
payable semi-annually in arrears on April 15 and October 15. From and including October 15, 2018, the 10% debentures will bear
interest at an annual rate, reset quarterly, equal to three-month LIBOR plus 6.824%, payable quarterly in arrears. The Company has the
right, on one or more occasions, to defer the payment of interest on the 10% debentures. The Company may defer interest for up to ten
consecutive years without giving rise to an event of default. Deferred interest will accumulate additional interest at an annual rate equal
to the annual interest rate then applicable to the 10% debentures. If the Company defers interest for five consecutive years or, if earlier,
pays current interest during a deferral period, which may be paid from any source of funds, the Company will be required to pay
deferred interest from proceeds from the sale of certain qualifying securities.
In connection with the offering of the 10% debentures, the Company entered into a "Replacement Capital Covenant" for the benefit of
holders of one or more designated series of the Company's indebtedness, initially the Company’ s 6.1% notes due 2041. Under the terms
of the Replacement Capital Covenant, if the Company redeems the 10% debentures at any time prior to October 15, 2048 it can only do
so with the proceeds from the sale of certain qualifying replacement securities. Subject to the Replacement Capital Covenant, the
Company can redeem the 10% debentures at its option, in whole or in part, at any time on or after October 15, 2018 at a redemption
price of 100% of the principal amount being redeemed plus accrued but unpaid interest.