Travelers 2010 Annual Report Download - page 220

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
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.
2010 Debt Payments and Maturities—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 Debt Issuance—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.
2009 Debt Maturity—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.
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 that expires on June 10,
2013. (See ‘‘Line of Credit Agreement’’ discussion that follows). Interest rates on commercial paper
issued in 2010 ranged from 0.2% to 0.3%, and in 2009 ranged from 0.2% to 0.7%.
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.
Junior Subordinated Debentures—The Company’s $115 million remaining aggregate principal
amount of 6.25% fixed-to-floating rate 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
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