Travelers 2007 Annual Report Download - page 211

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. DEBT (Continued)
Line of Credit Agreement
On June 10, 2005, the Company entered into a $1.0 billion, five-year revolving credit agreement
with a syndicate of financial institutions. Pursuant to covenants in the credit agreement, the Company
must maintain an excess of consolidated net worth over goodwill and other intangible assets of not less
than $10 billion at all times. The Company must also maintain a ratio of total consolidated debt to the
sum of total consolidated debt plus consolidated net worth of not greater than 0.40 to 1.00. In addition,
the credit agreement contains other customary restrictive covenants as well as certain customary events
of default, including with respect to a change in control. At December 31, 2007, the Company was in
compliance with these covenants and all other covenants related to its respective debt instruments
outstanding. Pursuant to the terms of the credit agreement, the Company has an option to increase the
credit available under the facility, no more than once a year, up to a maximum facility amount of
$1.5 billion, subject to the satisfaction of a ratings requirement and certain other conditions. There was
no amount outstanding under the credit agreement as of December 31, 2007 or 2006.
Shelf Registration
In December 2005, the Company filed with the Securities and Exchange Commission a shelf
registration statement for the potential offering and sale of securities. The Company may offer these
securities from time to time at prices and on other terms to be determined at the time of offering.
During 2007 and 2006, the Company issued securities with a principal amount of $2.50 billion and
$800 million, respectively, (as described above) under this shelf registration statement.
8. SHAREHOLDERS’ EQUITY AND DIVIDEND AVAILABILITY
Preferred Stock
The Company’s preferred shareholders’ equity represents the par value of preferred shares
outstanding that the Company assumed in the merger related to The St. Paul Companies, Inc. Stock
Ownership Plan (SOP) Trust, less the remaining principal balance on the SOP Trust debt. The SOP
Trust borrowed funds from a U.S. underwriting subsidiary to finance the purchase of the preferred
shares, and the Company guaranteed the SOP debt. The final payment on the SOP debt was made in
January 2005.
The SOP Trust may at any time convert any or all of the preferred shares into shares of the
Company’s common stock at a rate of eight shares of common stock for each preferred share. The
Board of Directors has reserved a sufficient number of authorized common shares to satisfy the
conversion of all preferred shares issued to the SOP Trust and the redemption of preferred shares to
meet employee distribution requirements. Upon the redemption of preferred shares, the Company will
issue shares of common stock to the trust to fulfill the redemption obligations. See note 12. Holders of
the preferred stock have a preference upon liquidation, dissolution or winding up of the Company of
$100 per share.
In September 2005, the SOP was merged into the St. Paul Travelers 401(k) Savings Plan (the
401(k) Savings Plan). See note 12.
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