Progressive 2014 Annual Report Download - page 28

certain market disruption events, to sell enough qualifying capital securities to permit repayment of the 6.70% Debentures in
full on the scheduled maturity date or, if sufficient proceeds are not realized from the sale of such qualifying capital
securities by such date, on each interest payment date thereafter. Any remaining outstanding principal will be due on
June 15, 2067, the final maturity date.
In April 2014, we issued $350 million of 4.35% Senior Notes due 2044 (the “4.35% Senior Notes”). We received proceeds of
$346.3 million, after deducting underwriter’s discounts and commissions. In addition, we incurred expenses of
approximately $0.7 million related to the issuance. Upon issuance of the 4.35% Senior Notes, we closed a forecasted debt
issuance hedge, which was entered into to hedge against a possible rise in interest rates, and recognized a $1.6 million
pretax loss as part of accumulated other comprehensive income (loss); the loss will be recognized as an adjustment to
interest expense and amortized over the life of the 4.35% Senior Notes.
We retired the entire $150 million of our 7% Notes at maturity in October 2013. The 3.75% Senior Notes, the 6 5/8% Senior
Notes, the 6.25% Senior Notes, and the 4.35% Senior Notes (collectively, “Senior Notes”) may be redeemed in whole or in
part at any time, at our option, subject to a “make-whole” provision. The 6.70% Debentures may be redeemed, in whole or
in part, at any time: (a) prior to June 15, 2017, at a redemption price equal to the greater of (i) 100% of the principal amount
of the 6.70% Debentures being redeemed, or (ii) a “make-whole” amount, in each case plus any accrued and unpaid
interest; or (b) on or after June 15, 2017, at a redemption price equal to 100% of the principal amount of the 6.70%
Debentures being redeemed, plus any accrued and unpaid interest.
During 2014 and 2013, we repurchased, in the open market, $44.3 million and $54.1 million, respectively, in aggregate
principal amount of our 6.70% Debentures. Since the amount paid exceeded the carrying value of the debt we repurchased,
we recognized losses on these extinguishments of $4.8 million and $4.3 million for 2014 and 2013, respectively.
Prior to issuance of each of the Senior Notes and 6.70% Debentures, we entered into forecasted debt issuance hedges
against possible rises in interest rates. Upon issuance of the applicable debt securities, the hedges were closed and we
recognized unrealized gains (losses) as part of accumulated other comprehensive income. The original unrealized gain
(loss) at the time of each debt issuance and the unamortized balance at December 31, 2014, on a pretax basis, of these
hedges, were as follows:
(millions)
Unrealized Gain (Loss)
at Debt Issuance
Unamortized Balance
at December 31, 2014
3.75% Senior Notes $ (5.1) $(3.6)
6 5/8% Senior Notes (4.2) (3.2)
6.25% Senior Notes 5.1 4.0
4.35% Senior Notes (1.6) (1.6)
6.70% Debentures 34.4 6.6
The gains (losses) on these hedges are deferred and are being amortized as adjustments to interest expense over the life
of the related Senior Notes, and over the 10-year fixed interest rate term for the 6.70% Debentures. In addition to this
amortization, during 2014 and 2013, we reclassified $0.5 million and $0.8 million, respectively, on a pretax basis, from
accumulated other comprehensive income on the balance sheet to net realized gains on securities on the comprehensive
income statement, reflecting the portion of the unrealized gain on forecasted transactions that was related to the portion of
the 6.70% Debentures repurchased during the periods.
In March 2014, we renewed the unsecured, discretionary line of credit (the “Line of Credit”) with PNC Bank, National
Association (PNC) in the maximum principal amount of $100 million. The prior line of credit, entered into in March 2013, has
expired. The Line of Credit is on substantially the same terms and conditions as the prior line of credit. Subject to the terms
and conditions of the Line of Credit documents, advances under the Line of Credit (if any) will bear interest at a variable rate
equal to the higher of PNC’s Prime Rate or the sum of the Federal Funds Open Rate plus 50 basis points. Each advance
must be repaid on the 30th day after the advance or, if earlier, on March 25, 2015, the expiration date of the Line of Credit.
Prepayments are permitted without penalty. All advances under the Line of Credit are subject to PNC’s discretion. We had
no borrowings under the Line of Credit or the prior line of credit in 2014 or 2013.
App.-A-27