Travelers 2002 Annual Report Download - page 79

8-1/8% Senior Notes — Also in April 2000, we issued $250 million
of senior notes due April 15, 2010. Proceeds were used to repay com-
mercial paper debt and for general corporate purposes.
Nuveen Investments’ Line of Credit Borrowings — In 2000,
Nuveen Investments, our asset management subsidiary, entered into
a $250 million revolving line of credit that extends through August
2003. The line is divided into two equal facilities, one of which has a
three-year term; the other is renewable in 364 days. At December 31,
2001, Nuveen Investments had two borrowings under this facility,
including $125 million under the three-year facility and $58 million
under the 364-day facility. In July 2002, Nuveen Investments entered
into and fully drew down a $250 million revolving line of credit with The
St. Paul. Nuveen Investments used a portion of the proceeds to
reduce the amount of debt outstanding on its revolving bank line of
credit from $183 million at the end of June 2002 to $55 million at
December 31, 2002. At December 31, 2002, the weighted average
interest rate on debt outstanding under its bank line of credit was
approximately 2.0%, compared with 3.1% at the end of 2001.
Commercial Paper — We maintain an $800 million commercial
paper program with $600 million of back-up liquidity, consisting of
bank credit agreements totaling $540 million and $60 million of highly-
liquid, high-quality fixed income securities. Interest rates on commer-
cial paper issued in 2002 ranged from 1.4% to 2.1%; in 2001 the
range was 1.1% to 6.7%; and in 2000 the range was 5.5% to 6.7%.
Zero Coupon Convertible Notes — The zero coupon convertible
notes mature in 2009, but were redeemable beginning in 1999 for an
amount equal to the original issue price plus accreted original issue
discount. In addition, on March 3, 1999 and March 3, 2004, the hold-
ers of the zero coupon convertible notes had/have the right to require
us to purchase their notes for the price of $640.82 and $800.51,
respectively, per $1,000 of principal amount due at maturity. In 1999,
we repurchased approximately $34 million face amount of the zero
coupon convertible notes, for a total cash consideration of $21 million.
7-1/8% Senior Notes — The 7-1/8% senior notes mature in 2005.
Variable Rate Borrowings — A number of our real estate entities
are parties to variable rate loan agreements aggregating $64 million.
The borrowings mature in the year 2030, with principal paydowns
starting in the year 2006. The interest rate is set weekly by a third
party, and was 2.05% at December 31, 2002 and 2.7% at
December 31, 2001.
Interest Rate Swap Agreements — At December 31, 2002 and
2001, we were party to a number of interest rate swap agreements
with a total notional amount of $730 million and $230 million, respec-
tively, related to several of our outstanding debt issues. The net effect
of the swaps was to reduce our interest expense in 2002 and 2001 by
$21 million and $7 million, respectively. The aggregate fair values of
these swap agreements at December 31, 2002 and 2001 were assets
of $65 million and $23 million, respectively. Prior to our adoption of
SFAS No. 133, as amended, on January 1, 2001, the fair value of these
swap agreements was not recorded on our balance sheet. Upon adop-
tion, we reflected the fair value of these swap agreements as an
increase to other assets and a corresponding increase to debt on our
balance sheet, with the statement of operations impacts offsetting.
8-3/8% Senior Notes — In June 2001, our $150 million of 8-3/8%
senior notes matured. The repayment of these notes was funded
through a combination of internally generated funds and the issuance
of commercial paper.
Interest Expense — Our net interest expense on debt was
$112 million in 2002, $110 million in 2001 and $115 million in 2000.
Maturities — The amount of debt obligations, other than commer-
cial paper, that become due in each of the next five years is as follows:
2003, $67 million; 2004, $110 million; 2005, $429 million; 2006,
$59 million; and 2007, $1,015 million.
COMPANY-OBLIGATED MANDATORILY REDEEMABLE
PREFERRED SECURITIES OF TRUSTS HOLDING SOLELY
SUBORDINATED DEBENTURES OF THE COMPANY
In November 2001, St. Paul Capital Trust I issued 23,000,000 trust
preferred securities, generating gross proceeds of $575 million.
St. Paul Capital Trust I had been formed for the sole purpose of issu-
ing these securities. The proceeds were used to buy The St. Paul’s
junior subordinated debentures. The Trust Preferred Securities pay a
quarterly distribution at an annual rate of 7.6% of each security’s liq-
uidation amount of $25. The St. Paul’s debentures have a mandatory
redemption date of October 15, 2050, but we can redeem them on or
after November 13, 2006. The proceeds of such redemptions will be
used to redeem a like amount of Trust Preferred Securities.
In 1995, we issued, through St. Paul Capital L.L.C. (“SPCLLC”),
4,140,000 company-obligated mandatorily redeemable preferred
securities, generating gross proceeds of $207 million. These securi-
ties were also known as convertible monthly income preferred securi-
ties (“MIPS”). The MIPS paid a monthly distribution at an annual rate
of 6% of the liquidation preference of $50 per security. During 2000,
SPCLLC provided notice to the holders of the MIPS that it was exer-
cising its right to cause the conversion rights of the owners of the
MIPS to expire. The MIPS were convertible into 1.6950 shares of our
common stock (equivalent to a conversion price of $29.50 per share).
Prior to the expiration date, holders of over 99% of the MIPS exer-
cised their conversion rights and, in August 2000, we issued
7,006,954 common shares in connection with the conversion. The
remaining MIPS were redeemed for cash at $50 per security, plus
accumulated preferred distributions.
In connection with our purchase of MMI in April 2000, we assumed
all obligations under their preferred securities. In December 1997,
MMI issued $125 million of 30-year mandatorily redeemable preferred
securities through MMI Capital Trust I, formed for the sole purpose of
issuing the securities. The preferred securities pay a preferred distri-
bution of 7-5/8% semi-annually in arrears, and have a mandatory
redemption date of December 15, 2027.
In 1997 and 1996, USF&G issued three series of preferred secu-
rities. After consummation of the merger with USF&G in 1998, The
St. Paul assumed all obligations relating to these preferred securities.
These Series A, Series B and Series C Capital Securities were issued
through separate wholly-owned business trusts (“USF&G Capital I,”
“USF&G Capital II,” and “USF&G Capital III,” respectively) formed for
the sole purpose of issuing the securities. We have effectively
fully and unconditionally guaranteed all obligations of the three
business trusts.
In December 1996, USF&G Capital I issued 100,000 shares of
8.5% Series A Capital Securities, generating gross proceeds of
$100 million. The proceeds were used to purchase $100 million of
USF&G Corporation 8.5% Series A subordinated debentures, which
mature on December 15, 2045. The debentures are redeemable
under certain circumstances related to tax events at a price of $1,000
per debenture. The proceeds of such redemptions will be used to
redeem a like amount of the Series A Capital Securities.
In January 1997, USF&G Capital II issued 100,000 shares of
8.47% Series B Capital Securities, generating gross proceeds of
$100 million. The proceeds were used to purchase $100 million of
USF&G Corporation 8.47% Series B subordinated debentures, which
mature on January 10, 2027. The debentures are redeemable at our
option at any time beginning in January 2007 at scheduled redemp-
tion prices ranging from $1,042 to $1,000 per debenture. The deben-
tures are also redeemable prior to January 2007 under certain
circumstances related to tax and other special events. The proceeds
of such redemptions will be used to redeem a like amount of the
Series B Capital Securities.
In July 1997, USF&G Capital III issued 100,000 shares of 8.312%
Series C Capital Securities, generating gross proceeds of $100 mil-
lion. The proceeds were used to purchase $100 million of USF&G
Corporation 8.312% Series C subordinated debentures, which
mature on July 1, 2046. The debentures are redeemable under cer-
tain circumstances related to tax events at a price of $1,000 per
The St. Paul Companies 2002 Annual Report 77