Travelers 2008 Annual Report Download - page 127

(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 30 basis points for the senior notes.
On December 15, 2008, two medium-term notes with a cumulative par value of $149 million, each
bearing an interest rate of 6.38%, matured and were fully paid.
2007. 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 issued $1 billion aggregate principal amount of 6.25%
fixed-to-floating rate junior subordinated debentures due March 15, 2067 for net proceeds of
$986 million (after original issue discount and the deduction of underwriting expenses and commissions
and other expenses). The debentures were issued at a discount, resulting in an effective interest rate of
6.447%. The debentures bear interest at an annual rate of 6.25% from the date of issuance to, but
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 fifteen 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.
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