Travelers 2008 Annual Report Download - page 223

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
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 30 basis points for the senior notes.
2008 Debt Maturities.—In March 2008, the Company’s $400 million, 3.75% senior notes matured
and were fully paid. In December 2008, medium-term notes with a par value of $149 million and an
interest rate of 6.38% matured and were fully paid.
2007 Debt Issuances—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 15 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.
The Company can redeem the debentures at its option, in whole or in part, at any time on or after
March 15, 2017 at a redemption price of 100% of the principal amount being redeemed plus accrued
but unpaid interest. The Company can redeem the debentures at its option prior to March 15, 2017
(a) in whole at any time or in part from time to time or (b) in whole, but not in part, in the event of
certain tax or rating agency events relating to the debentures, at a redemption price equal to the
greater of 100% of the principal amount being redeemed and the applicable make-whole amount, in
each case plus any accrued and unpaid interest.
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