Travelers 2012 Annual Report Download - page 225

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
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 $1 million for each
of the years ended December 31, 2012 and 2011.
The following table presents merger-related unamortized fair value adjustments and the related
effective interest rate:
Unamortized
Fair Value
Purchase
Adjustment at Effective
December 31, Interest Rate
(in millions) Issue Rate Maturity Date 2012 2011 to Maturity
Subordinated debentures ................... 7.625% Dec. 2027 $17 $18 6.147%
8.500% Dec. 2045 16 16 6.362%
8.312% Jul. 2046 19 19 6.362%
Total ................................ $52 $53
The Travelers Companies, Inc. fully and unconditionally guarantees the payment of all principal,
premiums, if any, and interest on certain debt obligations of its subsidiaries TPC and Travelers
Insurance Group Holdings Inc. (TIGHI). The guarantees pertain to the $500 million 5.00% notes due
2013, the $200 million 7.75% notes due 2026 and the $500 million 6.375% notes due 2033.
Maturities—The amount of debt obligations, other than commercial paper, that become due in
each of the next five years is as follows: 2013, $500 million; 2014, none; 2015, $400 million; 2016, $400
million; and 2017, $450 million.
Line of Credit Agreement
The Company is party to a three-year, $1.0 billion revolving credit agreement with a syndicate of
financial institutions that expires in June 2013. Pursuant to the credit agreement covenants, the
Company must maintain a minimum consolidated net worth (generally defined as shareholders’ equity
plus certain trust preferred and mandatorily convertible securities, reduced for goodwill and other
intangible assets) of $14.35 billion. The Company must also maintain a ratio of total debt to the sum of
total debt plus consolidated net worth of not greater than 0.40 to 1.00. In addition, the credit
agreement contains other customary restrictive covenants as well as certain customary events of default,
including with respect to a change in control, which is defined to include the acquisition of 35% or
more of the Company’s voting stock and certain changes in the composition of the Company’s board of
directors. At December 31, 2012, the Company was in compliance with these covenants. Generally, the
cost of borrowing under this agreement will range from LIBOR plus 100 basis points to LIBOR plus
175 basis points depending on the Company’s credit ratings. At December 31, 2012, that cost would
have been LIBOR plus 125 basis points had there been any amounts outstanding under the credit
agreement. This line of credit also supports the Company’s commercial paper program.
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