Travelers 2005 Annual Report Download - page 187

THE ST. PAUL TRAVELERS COMPANIES, INC.AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
175
10. DEBT (Continued)
$200 million 7.75% Notes due 2026, the $893million 4.5% Convertible Notes due 2032 and the $500
million 6.375% Notes due 2033.
The Company’s consolidated balance sheet includes the debt instruments acquired in the merger,
which were recorded at fair value as of the acquisition date. The resulting fair value adjustment is being
amortized over the remaining life of the respectivedebt instruments using the effective-interest method.
The amortization of the fair value adjustment reduced interest expense by $54 million and $55 million for
the years ended December 31, 2005 and 2004, respectively.
The following table presents the unamortized fair value adjustment and the related effective interest
rate on the SPC debt instruments acquired in the merger:
Unamortized Fair Value
Purchase Adjustment at
Effective
Interest Rate
(inmillions) Issue Rate MaturityDateDecember 31, 2005 December 31, 2004 to Maturity
Senior notes........ 7.875 % Apr. 2005$ —$ 51.645%
7.125 % Jun. 2005 —2 1.881%
5.750 % Mar. 2007 18 33 2.625%
5.250 % Aug. 2007 —11 1.389%
8.125 % Apr. 2010 38 45 4.257%
Medium-term notes. 6.4 - 7.4 % Through 201021 34 3.310%
Subordinated
debentures....... 7.625 % Dec. 202721 22 6.147%
8.470 % Jan. 2027 77 7.660%
8.500 % Dec. 2045 16 16 6.362%
8.312 % Jul. 2046 20 20 6.362%
7.600 % Oct. 205042 42 7.057%
Zero Coupon
convertible notes .. 4.500 % Mar. 2009 22 4.175%
Total............ $ 185$239
Description of Debt
Commercial Paper—The Company maintains an $800 million commercial paper program with
$1 billion of back-up liquidity, consistingentirely of bank credit agreements. Interest rates on commercial
paper issued in 2005 ranged from 2.3% to 4.4%, and in 2004 ranged from 1.1% to 2.8%.
Medium-Term Notes—The medium-term notes outstanding at December 31, 2005 bear interest rates
ranging from 6.38% to 7.42%, with a weighted average rate of 6.76%. Maturity dates on remaining notes
outstanding at December 31, 2005 range from 2006 to 2010. During 2005 and 2004, medium-term notes
having a par value of $99 million and $59 million, respectively, matured.
5.01% Senior Notes—In July 2002, concurrent with theissuance of 17.8 million of SPC common shares
in a public offering, SPC issued 8.9 million equity units, each having a stated amount of $50, for gross
consideration of $442 million. Each equity unit initially consisted of a forward purchase contract for the
Company’s common stock, which matured in August 2005, and anunsecured $50senior note of the