Travelers 2007 Annual Report Download - page 210

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
maturity, unless previously redeemed by the Company, into common stock of the Company at a
conversion rate of 16.6433 shares for each $1,000 principal amount of notes. If all notes outstanding at
December 31, 2007 were converted, the Company would issue 2.4 million of its common shares.
Junior Subordinated Debentures—The Company’s $1 billion aggregate principal amount of 6.25%
fixed-to-floating rate junior subordinated debentures are described in the ‘‘2007 Debt Issuances’’ section
above. The Company’s other three junior subordinated debenture instruments are all similar in nature.
Three separate business trusts issued preferred securities to investors and used the proceeds to
purchase the Company’s subordinated debentures. Interest on each of the instruments is paid
semi-annually.
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 respective debt instruments using the effective-interest
method. The amortization of the fair value adjustment reduced interest expense by $19 million and
$34 million for the years ended December 31, 2007 and 2006, respectively.
The following table presents merger-related unamortized fair value adjustment and the related
effective interest rate:
Unamortized Fair Value Effective
Purchase Adjustment at Interest Rate
(in millions) Issue Rate Maturity Date December 31, 2007 December 31, 2006 to Maturity
Senior notes ........... 5.750% Mar. 2007 $— $ 3 2.625%
8.125% Apr. 2010 21 30 4.257%
Medium-term notes ..... 6.4%-7.4% Through 2010 612 3.310%
Subordinated debentures . 7.625% Dec. 2027 20 21 6.147%
8.470% Jan. 2027 —6 7.660%
8.500% Dec. 2045 16 16 6.362%
8.312% Jul. 2046 20 20 6.362%
Zero coupon convertible
notes .............. 4.500% Mar. 2009 —1 4.175%
Total .............. $83 $109
On April 1, 2004, The Travelers Companies, Inc. fully and unconditionally guaranteed the payment
of all principal, premiums, if any, and interest on certain debt obligations of its subsidiaries TPC and
Travelers Insurance Group Holdings Inc. (TIGHI). The guarantees pertain to the $400 million 3.75%
Notes due 2008, the $500 million 5.00% Notes due 2013, the $200 million 7.75% Notes due 2026 and
the $500 million 6.375% Notes due 2033.
Maturities—The amount of debt obligations, other than commercial paper, that become due in
each of the next five years is as follows: 2008, $552 million; 2009, $143 million; 2010, $273 million;
2011, $11 million; and 2012, $250 million.
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