Travelers 2008 Annual Report Download - page 225

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
Indenture dated April 1, 2004. Each note had a principal amount of $25.00. The redemption price for
each note was $25.5625 plus $0.009375 of accrued and unpaid interest. Any note called for redemption
could be surrendered for conversion into common stock before the close of business on April 17, 2007.
Each note was convertible into 0.4684 shares of common stock of The Travelers Companies, Inc.
Holders of $36 million of the notes tendered their certificates in exchange for the issuance of 670,910
of the Company’s common shares. The remaining $857 million of notes were redeemed for cash, along
with accrued interest to the date of redemption. The Company recorded a $39 million pretax loss
($25 million after-tax) in other revenues in the second quarter of 2007 related to the redemption,
consisting of the redemption premium paid and the write-off of remaining unamortized issuance costs.
In August 2007, the Company’s $442 million, 5.01% senior notes matured and were fully paid.
In 2007, medium-term notes with a cumulative par value of $72 million and interest rates ranging
from 6.85% to 7.37% matured and were fully paid.
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 2008 ranged from 0.5% to 4.6%, and in 2007 ranged from 4.7% to 5.7%.
Medium-Term Notes—The medium-term notes outstanding at December 31, 2008 bear an interest
rate of 7.415% and mature in 2010. During 2008 and 2007, medium-term notes having a par value of
$149 million and $72 million, respectively, matured.
Senior Notes—The Company’s various senior debt issues are unsecured obligations that rank
equally with one another. Interest payments are made semi-annually. 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 March 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
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, 2008 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 $15 million and
$19 million for the years ended December 31, 2008 and 2007, respectively.
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