Travelers 2007 Annual Report Download - page 207

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
excluding, March 15, 2017, payable semi-annually in arrears on March 15 and September 15. From and
including March 15, 2017, the debentures will bear interest at an annual rate equal to three-month
LIBOR plus 2.215%, payable quarterly 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 will not be required to settle deferred interest until it has deferred interest
for five consecutive years or, if earlier, made a payment of current interest during a deferral period.
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 debentures.
The debentures carry a 60-year final maturity and a scheduled maturity date in year thirty. During
the 180-day period ending not more than 15 and not less than ten business days prior to the scheduled
maturity date, the Company is required to use commercially reasonable efforts to sell enough qualifying
capital securities, or at its option, common stock, qualifying warrants, mandatorily convertible preferred
stock, debt exchangeable for common equity or debt exchangeable for preferred equity to permit
repayment of the debentures at the scheduled maturity date. If any 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 capital securities, or at its option, common stock,
qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity or
debt exchangeable for preferred equity to permit the repayment in full of the debentures. If there are
remaining debentures at the final maturity date, the Company is required to redeem the debentures
using any source of funds. Qualifying capital securities are securities (other than common stock,
qualifying warrants, mandatorily convertible preferred stock, debt exchangeable for common equity, and
debt exchangeable for preferred equity) which generally are treated by the ratings agencies as having
similar equity content to the debentures.
The Company can redeem the debentures at its option, in whole or in part, at any time on or after
March 15, 2017 at a redemption price of 100% of the principal amount being redeemed plus accrued
but unpaid interest. The Company can redeem the debentures at its option prior to March 15, 2017
(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 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 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 (which will initially be the 6.750% senior notes due 2036). Under the terms of the
replacement capital covenant, if the Company redeems the debentures at any time prior to March 15,
2047 it can only do so with the proceeds of securities that are treated by the rating agencies as having
similar equity content to the debentures.
In May 2007, the Company issued $250 million aggregate principal amount of 5.375% senior notes
due June 15, 2012 (the 2012 senior notes), $450 million aggregate principal amount of 5.750% senior
notes due December 15, 2017 (the 2017 senior notes), and $800 million aggregate principal amount of
6.250% senior notes due June 15, 2037 (the 2037 senior notes). The total net proceeds of these three
senior note issuances, after original issuance discounts and the deduction of underwriting expenses and
commissions and other expenses, were approximately $1.47 billion. Interest on each of the senior note
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