Travelers 2001 Annual Report Download - page 37

debt maturing during the year, including our $150 million, 8.375%
senior notes that matured in June and $46 million of medium-term
notes that matured throughout the year. During 2001, Nuveen uti-
lized a portion of its $250 million revolving line of credit for general
corporate purposes, including funding a portion of its acquisition
of Symphony Asset Management LLC, and the repurchase of its
common shares. At year-end 2001, $183 million, bearing a weighted
average interest rate of approximately 3.1%, was outstanding under
Nuveen’s line of credit agreement.
At the end of 2001, we were party to a number of interest rate swap
agreements related to several of our debt securities outstanding.
The notional amount of these swaps totaled $230 million, and their
aggregate fair value at Dec. 31, 2001 was $23 million. Upon our
adoption of SFAS No. 133, as amended, on Jan. 1, 2001, we began
recording the fair value of the swap agreements as an asset, with a
corresponding increase to reported debt.
2000 vs. 1999 – During 2000, we issued $500 million of senior
notes, the proceeds of which were used to repay commercial paper
and for other general corporate purposes. Of the $500 million
issued, $250 million bears an interest rate of 7.875% and is due in
April 2005, and $250 million bears an interest rate of 8.125% and
is due in April 2010. Commercial paper borrowings declined from
$400 million at the end of 1999 to $138 million at Dec. 31, 2000. In
addition, we repaid $46 million of floating rate notes in 2000 that
had been issued by a fully-consolidated special purpose offshore
reinsurance entity we created in 1999. We also repaid $13 million
of mortgage debt associated with two of our real estate invest-
ments in 2000.
Our total net interest expense related to debt was $110 million in
2001, $115 million in 2000 and $96 million in 1999.
Company-obligated Mandatorily Redeemable Preferred Securities
of Trusts Holding Solely Subordinated Debentures of the Company–
These securities were issued by five business trusts wholly-owned
by The St. Paul. Each trust was formed for the sole purpose of issu-
ing the preferred securities. St. Paul Capital Trust I was established
in November 2001 and issued $575 million of preferred securities
that make preferred distributions at a rate of 7.6%. These securi-
ties have a mandatory redemption date of Oct.15, 2050, but we can
redeem them on or after Nov. 13, 2006. The proceeds received from
the sale of these securities were used by the issuer to purchase our
subordinated debentures, and $500 million of the net proceeds
were ultimately contributed to the policyholders’ surplus of one of
our insurance subsidiaries.
MMI Capital Trust I was acquired in our purchase of MMI in 2000.
In 1997, the trust issued $125 million of 30-year redeemable
preferred securities. The securities make preferred distributions
at a rate of 7.625% and have a mandatory redemption date of
Dec. 15, 2027.
The remaining three trusts, acquired in the USF&G merger, each
issued $100 million of preferred securities making preferred distri-
butions at rates of 8.5%, 8.47% and 8.312%, respectively. In 2001,
we repurchased and retired $20 million of securities of the 8.5%
trust. In 1999, we repurchased and retired securities of these three
trusts with an aggregate liquidation value of $79 million, comprised
of the following components: $27 million of the 8.5% securities;
$22 million of the 8.47% securities; and $30 million of the 8.312%
securities. The repurchases were made in open market transactions
and were primarily funded through commercial paper borrowings.
Our total preferred distribution expense related to the preferred
securities was $33 million in 2001, $31 million in 2000, and $36 mil-
lion in 1999.
Independent Financial Ratings – In the aftermath of the Sept. 11
terrorist attack, certain of the major independent rating organiza-
tions placed our financial ratings under review. The scope of their
respective reviews was subsequently broadened to encompass the
rating implications of the strategic decisions that we announced in
December 2001 regarding our planned exit from certain businesses
and our intent to record significant provisions to strengthen loss
reserves. The rating agencies concluded their reviews in mid-
December concurrent with our strategic announcements and
announced updates to certain ratings. As of Jan. 23, 2002, none
of the major rating agencies has any of our financial ratings
under review.
We continue to have ready access to liquidity through the capital
markets, including the largest and most liquid sector of the
commercial paper market.
Acquisitions and Divestitures – In September 2001, we sold our life
insurance subsidiary, F&G Life, to Old Mutual plc, for $335 million
in cash and 190.4 million Old Mutual ordinary shares (valued at
$300 million at closing). The cash proceeds received were used for
general corporate purposes. We are required to hold the Old Mutual
common shares for one year after the closing date of the sale. These
shares had a market value of $242 million on Dec. 31, 2001. The sale
proceeds may be adjusted based on the market value of the shares
one year after the closing date of the sale as described on page 15
of this report. We also sold ACLIC, MMI’s life insurance subsidiary,
to CNA for $21 million in cash.
We purchased MMI in April 2000 for approximately $206 million in
cash, and the assumption of $165 million of short-term debt and
preferred securities. The short-term debt of $45 million was retired
subsequent to the acquisition. The cash portion of this transaction
and the repayment of debt was financed with internally-generated
funds. In addition, our purchase of Pacific Select in February 2000
for approximately $37 million in cash was financed with internally-
generated funds.
The St. Paul Companies 2001 Annual Report 35