Travelers 2007 Annual Report Download - page 209

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
2006 Debt Issuances—In June 2006, the Company issued $400 million aggregate principal amount
of 6.25% senior unsecured notes due June 20, 2016 and $400 million aggregate principal amount of
6.75% senior unsecured notes due June 20, 2036. The notes were issued at a discount, resulting in
effective interest rates of 6.30% and 6.86%, respectively. The notes pay interest semi-annually on
June 20 and December 20 of each year, beginning December 20, 2006, and rank equally with all of the
Company’s other senior unsecured indebtedness. Either series of senior notes is redeemable in whole
or in part from time to time, at the Company’s option, prior to maturity at a redemption price equal to
the greater of: 100% of the principal amount of senior notes to be redeemed; or 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 semiannual basis (assuming a 360-day year consisting of twelve 30-day months) at the
then current treasury rate plus 20 basis points for the 6.25% senior unsecured notes due June 20, 2016
and 25 basis points for the 6.75% senior unsecured notes due June 20, 2036. Net proceeds from the
issuances (after original issue discount and expenses) totaled approximately $786 million.
2006 Debt Redemptions and Maturities—In November 2006, the Company redeemed $593 million of
7.60% subordinated debentures originally issued in 2001 and due October 15, 2050. The debentures
were redeemable by the Company on or after November 13, 2006. In November 2001, St. Paul Capital
Trust I, a business trust, issued $575 million of preferred securities, the proceeds of which, along with
$18 million in capital provided by the Company, were used to purchase the subordinated debentures
issued by the Company. Upon the Company’s redemption of its subordinated debentures in November
2006, St. Paul Capital Trust I in turn used the proceeds to redeem its preferred securities. St. Paul
Capital Trust I was then liquidated, and the Company received an $18 million distribution of capital.
The Company recorded a $42 million pretax gain on the redemption of the subordinated debentures,
representing the remaining unamortized fair value adjustment recorded at the merger date. The gain
was recorded in ‘‘Other revenues’’ on the Consolidated Statement of Income. On November 15, 2006,
the Company’s $150 million, 6.75% senior notes matured. A portion of the net proceeds from the June
2006 debt issuances described above was also used to fund this maturity.
Description of Debt
Commercial Paper—The Company maintains an $800 million commercial paper program with
$1 billion of back-up liquidity, consisting entirely of a bank credit agreement. Interest rates on
commercial paper issued in 2007 ranged from 4.7% to 5.7%, and in 2006 ranged from 4.5% to 5.4%.
Medium-Term Notes—The medium-term notes outstanding at December 31, 2007 bear interest
rates ranging from 6.38% to 7.42%, with a weighted average rate of 6.51%. The remaining notes
outstanding at December 31, 2007 mature in 2008 and 2010. During 2007 and 2006, medium-term notes
having a par value of $72 million and $56 million, respectively, matured.
Senior Notes—The Company’s various senior debt issues are unsecured obligations that rank
equally with one another. Interest payments are generally made semi-annually, except for the 5.01%
senior notes, for which interest payments are made quarterly. The Company generally may redeem
some or all of the notes prior to maturity in accordance with terms unique to each debt instrument.
Zero Coupon Convertible Notes—The zero coupon convertible notes mature in 2009, but are
redeemable at the option of the Company for an amount equal to the original issue price plus accreted
original issue discount. Each note is convertible at the option of the holder at any time on or prior to
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