Unum 2014 Annual Report Download - page 137

UNUM • 2014 ANNUAL REPORT 135
Senior Secured Notes
In 2007, Northwind Holdings, LLC (Northwind Holdings), a wholly-owned subsidiary of Unum Group, issued $800.0 million
of insured, senior secured notes (the Northwind notes) in a private offering. The Northwind notes bear interest at a floating rate
equal to the three-month LIBOR plus 0.78%.
Northwind Holdings’ ability to meet its obligations to pay principal, interest, and other amounts due on the Northwind notes will be
dependent principally on its receipt of dividends from Northwind Reinsurance Company (Northwind Re), the sole subsidiary of Northwind
Holdings. Northwind Re reinsured the risks attributable to specified individual disability insurance policies issued by or reinsured by
Provident Life and Accident Insurance Company, Unum Life Insurance Company of America, and The Paul Revere Life Insurance Company
(collectively, the ceding insurers) pursuant to separate reinsurance agreements between Northwind Re and each of the ceding insurers.
The ability of Northwind Re to pay dividends to Northwind Holdings will depend on its satisfaction of applicable regulatory requirements
and the performance of the reinsured policies.
Recourse for the payment of principal, interest, and other amounts due on the Northwind notes is limited to the collateral for the
Northwind notes and the other assets, if any, of Northwind Holdings. The collateral consists of a first priority, perfected security interest
in (a) the debt service coverage account (DSCA) that Northwind Holdings is required to maintain in accordance with the indenture pursuant
to which the Northwind notes were issued (the Northwind indenture), (b) the capital stock of Northwind Re and the dividends and
distributions on such capital stock, and (c) Northwind Holdings’ rights under the transaction documents related to the Northwind notes
to which Northwind Holdings is a party. At December 31, 2014, the amount in the DSCA was $5.4 million. None of Unum Group, the
ceding insurers, Northwind Re, or any other affiliate of Northwind Holdings is an obligor or guarantor with respect to the Northwind notes.
Northwind Holdings is required to repay a portion of the outstanding principal under the Northwind notes at par on the quarterly
scheduled payment dates under the Northwind notes in an amount equal to the lesser of (i) a targeted amortization amount as defined
in the Northwind indenture and (ii) the amount of the remaining available funds in the DSCA minus an amount equal to the minimum
balance that is required to be maintained in the DSCA under the Northwind indenture, provided that Northwind Holdings has sufficient
funds available to pay its other expenses, including interest payments on the Northwind notes, and to maintain the minimum balance
in the DSCA as required under the Northwind indenture. Northwind Holdings made principal payments on the Northwind notes
of $41.6 million in 2014 and $60.0 million in both 2013 and 2012.
In 2006, Tailwind Holdings, LLC (Tailwind Holdings) a wholly-owned subsidiary of Unum Group, issued $130.0 million of insured, senior,
secured notes due 2036 in a private offering. During 2012, Tailwind Holdings made principal payments of $10.0 million on these notes.
In 2013, we purchased and retired the outstanding principal of $62.5 million on these notes, resulting in a before-tax gain of $4.0 million.
Unsecured Notes
In May 2014, we purchased and retired $145.0 million principal of our outstanding 6.85% notes, including a make-whole amount
of $13.2 million, for a total cost of $158.2 million. In conjunction with this retirement, we reclassified $13.1 million of the deferred gain
on previously terminated derivatives associated with the hedge of this debt from accumulated other comprehensive income to realized
investment gain in our consolidated statements of income. These notes were issued by UnumProvident Finance Company plc, a wholly-
owned subsidiary of Unum Group, and the outstanding balance is fully and unconditionally guaranteed by Unum Group.