Travelers 2007 Annual Report Download - page 208

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
issuances is payable semi-annually on June 15 and December 15, commencing December 15, 2007.
Each series of senior notes is redeemable in whole at any time or in part from time to time, at the
Company’s option, at a redemption price equal to the greater of (a) 100% of the principal amount of
senior notes to be redeemed, or (b) the sum of the present values of the remaining scheduled payments
of principal and interest on the senior notes to be redeemed (exclusive of interest accrued to the date
of redemption) discounted to the date of redemption on a semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the then current Treasury Rate plus 12.5 basis points for the
2012 senior notes, 15 basis points for the 2017 senior notes and 20 basis points for the 2037 senior
notes. The Company applied a portion of the net proceeds of this offering to repay approximately
$442 million of senior notes maturing on August 16, 2007 and to repay approximately $42 million of
medium-term notes maturing in the third quarter of 2007. The remaining proceeds will be used for
general corporate purposes. Prior to applying these proceeds, the Company invested them in
investment grade, marketable securities.
2007 Debt Redemptions and Maturities—In January 2007, the Company redeemed $81 million of
8.47% subordinated debentures originally issued in 1997 and due January 10, 2027. The debentures
were redeemable by the Company on or after January 10, 2007. In January 1997, USF&G Capital II, a
business trust, issued $100 million of capital securities, the proceeds of which, along with $3 million in
capital provided by the Company, were used to purchase the subordinated debentures issued by
USF&G Corporation and subsequently assumed by the Company after the merger of The St. Paul
Companies Inc. (SPC) and Travelers Property Casualty Corp. (TPC). During the period prior to
redemption, the Company had repurchased and retired $22 million of the debentures in open market
transactions. Upon the Company’s redemption of the remaining $81 million of subordinated debentures
in January 2007, USF&G Capital II in turn used the proceeds to redeem its remaining capital securities
outstanding. USF&G Capital II was then liquidated, and the Company received a $3 million
distribution of capital. The Company recorded a $3 million pretax gain on the redemption of the
subordinated debentures, due to the remaining unamortized fair value adjustment recorded at the
merger date, less the redemption premium paid.
In March 2007, the Company’s $500 million, 5.75% senior notes matured and were fully paid.
In April 2007, the Company completed the redemption of its outstanding $893 million, 4.50%
convertible junior subordinated notes due in 2032 (the notes). The notes were originally issued by TPC,
and the Company assumed certain obligations relating to the notes pursuant to a Second Supplemental
Indenture dated April 1, 2004. Each note had a principal amount of $25.00. The redemption price for
each note was $25.5625 plus $0.009375 of accrued and unpaid interest. Any note called for redemption
could be surrendered for conversion into common stock before the close of business on April 17, 2007.
Each note was convertible into 0.4684 shares of common stock of The Travelers Companies, Inc.
Holders of $36 million of the notes tendered their certificates in exchange for the issuance of 670,910
of the Company’s common shares. The remaining $857 million of notes were redeemed for cash, along
with accrued interest to the date of redemption. The Company recorded a $39 million pretax loss
($25 million after-tax) in other revenues in the second quarter of 2007 related to the redemption,
consisting of the redemption premium paid and the write-off of remaining unamortized issuance costs.
In August 2007, the Company’s $442 million, 5.01% senior notes matured and were fully paid.
In 2007, medium-term notes with a cumulative par value of $72 million and interest rates ranging
from 6.85% to 7.37% matured and were fully paid.
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