Travelers 2013 Annual Report Download - page 228

THE TRAVELERS COMPANIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. DEBT (Continued)
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 have a final maturity date of March 15, 2067 and a scheduled maturity date of
March 15, 2037. The Company can redeem the debentures at its option any time (as described above)
using any source of funds, including cash. If the Company chooses not to redeem the debentures, then
during the 180-day period ending not more than 15 and not less than ten business days prior to the
scheduled maturity date, the Company will be required to use commercially reasonable efforts to sell
enough qualifying capital securities to permit repayment of the debentures at the scheduled maturity
date. If any debentures remain outstanding after the scheduled maturity date, unless and until the
Company redeems the debentures (as described above) using any source of funds, including cash, the
Company shall be required to use its commercially reasonable efforts on a quarterly basis to raise
sufficient proceeds from the sale of qualifying capital securities 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’s three other junior subordinated debenture instruments are all similar in nature to
each other. Three separate business trusts issued preferred securities to investors and used the proceeds
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, 2013 and 2012.
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 2013 2012 to Maturity
Subordinated debentures ................... 7.625% Dec. 2027 $17 $17 6.147%
8.500% Dec. 2045 15 16 6.362%
8.312% Jul. 2046 19 19 6.362%
Total ................................ $51 $52
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 $200 million 7.75% notes due
2026 and the $500 million 6.375% notes due 2033.
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