Travelers 2010 Annual Report Download - page 128

Financing Activities
Net cash flows used in financing activities totaled $5.22 billion, $3.44 billion and $2.87 billion in
2010, 2009 and 2008, respectively. The totals in each year reflected common share repurchases,
dividends to shareholders and the repayment of debt, partially offset by the proceeds from employee
stock option exercises and the issuance of debt.
Debt Transactions.
2010. On November 1, 2010, the Company issued $500 million aggregate principal amount 3.90%
senior notes that will mature on November 1, 2020, and $750 million aggregate principal amount 5.35%
senior notes that will mature on November 1, 2040. The net proceeds of these issuances, after original
issuance discount and the deduction of underwriting expenses and commissions and other expenses,
totaled approximately $496 million and $738 million, respectively. Interest on the senior notes is
payable semi-annually in arrears on November 1 and May 1 of each year. The senior notes are
redeemable in whole at any time or in part from time to time, at the Company’s option, at a
redemption price equal to the greater of (a) 100% of the principal amount of senior notes to be
redeemed or (b) the sum of the present 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 (as defined) plus 15 basis points for the 2020
senior notes and 20 basis points for the 2040 notes.
Prior to November 2010, the Company was subject to a replacement capital covenant that it had
granted to the holders of its 6.75% senior notes due June 20, 2036 (the senior notes). The replacement
capital covenant restricted the Company’s ability to repurchase its $1.00 billion in outstanding 6.25%
fixed-to-floating rate junior subordinated debentures due March 15, 2067 (the debentures). In
November 2010, the Company paid approximately $4 million to holders of the senior notes to
terminate the replacement capital covenant. Following the termination, the Company purchased
approximately $885 million aggregate principal amount of the debentures. A $60 million pretax loss was
recognized in 2010 related to these transactions.
On September 16, 2010, the Company repaid the remaining $4 million principal balance on its
7.81% private placement senior notes. On August 23, 2010, the Company’s $21 million, 7.415%
medium-term notes matured and were fully paid. On April 15, 2010, the Company’s $250 million,
8.125% senior notes matured and were fully paid. All of these debt payments were made from
internally-generated funds.
2009. On June 2, 2009, the Company issued $500 million aggregate principal amount of 5.90%
senior notes that will mature on June 2, 2019. The net proceeds of the issuance, after original issuance
discount and the deduction of underwriting expenses and commissions and other expenses, totaled
approximately $494 million. Interest on the senior notes is payable semi-annually in arrears on June 2
and December 2 of each year. The senior notes are redeemable in whole at any time or in part from
time to time, at the Company’s option, at a redemption price equal to the greater of (a) 100% of the
principal amount of senior notes to be redeemed or (b) the sum of the present 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 (as
defined) plus 35 basis points for the senior notes.
On March 3, 2009, the Company’s zero coupon convertible notes with an effective yield of 4.17%
and a remaining principal balance of $141 million matured and were fully paid.
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