Travelers 2011 Annual Report Download - page 223

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
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.
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.
Description of Debt
Commercial Paper—The Company maintains an $800 million commercial paper program,
supported by a $1.0 billion bank credit agreement that expires on June 10, 2013. (See ‘‘Line of Credit
Agreement’’ discussion that follows). Interest rates on commercial paper issued in 2011 ranged from
0.1% to 0.3%, and in 2010 ranged from 0.2% to 0.3%.
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
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 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.
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
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