Travelers 2009 Annual Report Download - page 132

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.
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.
In connection with the offering of the debentures, the Company entered into a ‘‘replacement
capital covenant’’ for the benefit of holders of one or more designated series of the Company’s
indebtedness (which will initially be the 6.750% senior notes due 2036). Under the terms of the
replacement capital covenant, if the Company redeems the debentures at any time prior to March 15,
2047 it can only do so with the proceeds of securities that are treated by the rating agencies as having
similar equity content to the debentures.
In March 2007, the Company’s $500 million, 5.75% senior notes matured and were fully paid.
In April 2007, the Company completed the redemption of its outstanding $893 million, 4.50%
convertible junior subordinated notes due in 2032 (the notes). The notes were originally issued by
120