Travelers 2003 Annual Report Download - page 66

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goals of assuring Travelers ability to meet policyholder obligations as well as to optimize investment returns, given
these obligations.
TPC is a holding company whose principal asset is the capital stock of TIGHI and its insurance operating subsidiaries.
TIGHI’s insurance subsidiaries are subject to various regulatory restrictions that limit the maximum amount of
dividends available to be paid to their parent without prior approval of insurance regulatory authorities. A maximum
of $1.647 billion will be available by the end of 2004 for such dividends without prior approval of the Connecticut
Insurance Department. TIGHI received $927.0 million of dividends from its insurance subsidiaries during 2003.
At December 31, 2003, total cash and short-term invested assets aggregating $212.3 million were held at TPC and
TIGHI. These liquid assets were primarily funded by dividends received from Travelers operating subsidiaries. These
liquid assets, combined with other sources of funds available to TPC, primarily additional dividends from Travelers
operating subsidiaries, are considered sufficient to meet the liquidity requirements of TPC and TIGHI. These liquidity
requirements include primarily, shareholder dividends and debt service. In addition, effective April 17, 2003, TPC
entered into the following line of credit agreements with Citibank, a subsidiary of Citigroup, TPC's former parent: (i) a
$250.0 million 45-month revolving line of credit (the 45-Month Line of Credit), and (ii) a $250.0 million 364-day
revolving line of credit (the 364-Day Line of Credit and, together with the 45-Month Line of Credit, the Lines of
Credit). TPC may, with Citibank’s consent, extend the commitment of the 364-Day Line of Credit for additional 364-
day periods under the same terms and conditions. TPC has the option, provided there is no default or event of default,
to convert outstanding advances under the 364-Day Line of Credit at the commitment termination date to a term loan
maturing no later than one year from the commitment termination date. Borrowings under the Lines of Credit may be
made, at TPC’s option, at a variable interest rate equal to either the lender’s base rate plus an applicable margin or at
LIBOR plus an applicable margin. Each Line of Credit includes a commitment fee and, for any date on which
advances exceed 50% of the total commitment, a utilization fee. The applicable margin and the rates on which the
commitment fee and the utilization fee are based vary based upon TPC’s long-term senior unsecured non-credit-
enhanced debt ratings. Each Line of Credit requires TPC to comply with various covenants, including the maintenance
of minimum statutory capital and surplus of $5.5 billion and a maximum ratio of total consolidated debt to total capital
of 45%. At December 31, 2003, Travelers was in compliance with these financial covenants. In addition, an event of
default will occur if there is a change in control (as defined in the Lines of Credit agreements) of TPC. The proposed
merger with SPC would constitute such a change in control of TPC; however Travelers has obtained a waiver from
Citibank of the event of default that otherwise would have occurred in connection with the proposed merger with SPC.
There were no amounts outstanding under the Lines of Credit at December 31, 2003. Previous lines of credit between
TIGHI and Citigroup have been terminated.
Net cash flows used in financing activities totaled $1.099 billion, $800.1 million and $1.083 billion in 2003, 2002 and
2001, respectively. Cash flows used in financing activities in 2003 were primarily attributable to the redemption of
$900.0 million aggregate principal amount of TIGHI’s junior subordinated debt securities held by subsidiary trusts, the
repayment of $700.0 million of notes payable to a former affiliate and the repayment of $550.0 million of short-term
debt. Funds used in these repayments were primarily provided by TPC’s issuance of $1.400 billion of senior notes on
March 11, 2003 and by cash flows provided by operating activities. These refinancing activities were initiated with the
objective of lowering the average interest rate on Travelers total outstanding debt. Also reflected in 2003 was the
issuance of $550.0 million of short-term Floating Rate Notes which were used to repay the $550.0 million Promissory
Note due in January 2004. Net cash flows used in financing activities in 2003 also included dividends paid to
shareholders of $281.8 million. The 2002 cash flows used in financing activities reflects the repayment of $6.349
billion of notes payable to a former affiliate. These payments were partially offset by the receipt of $4.090 billion
from the first quarter 2002 initial public offering and the issuance of $917.3 million of convertible notes payable. The
2001 cash flows used in financing activities reflects the repayment of $1.040 billion of notes payable to a former
affiliate and the payment of $526.0 million of dividends.