The Hartford 2010 Annual Report Download - page 204

THE HARTFORD FINANCIAL SERVICES GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
F-76
14. Debt (continued)
Contingent Capital Facility
On February 12, 2007, The Hartford entered into a put option agreement (the “Put Option Agreement”) with Glen Meadow ABC Trust,
a Delaware statutory trust (the “ABC Trust”), and LaSalle Bank National Association, as put option calculation agent. The Put Option
Agreement provides The Hartford with the right to require the ABC Trust, at any time and from time to time, to purchase The Hartford’ s
junior subordinated notes (the “Notes”) in a maximum aggregate principal amount not to exceed $500. Under the Put Option
Agreement, The Hartford will pay the ABC Trust premiums on a periodic basis, calculated with respect to the aggregate principal
amount of Notes that The Hartford had the right to put to the ABC Trust for such period. The Hartford has agreed to reimburse the
ABC Trust for certain fees and ordinary expenses. The Company holds a variable interest in the ABC Trust where the Company is not
the primary beneficiary. As a result, the Company did not consolidate the ABC Trust. As of December 31, 2010, The Hartford has not
exercised its right to require ABC Trust to purchase the Notes. As a result, the Notes remain a source of capital for the HFSG Holding
Company.
Commercial Paper and Revolving Credit Facility
The table below details the Company’ s short-term debt programs and the applicable balances outstanding.
Maximum Available As of Outstanding As of
Effective Expiration December 31,
December 31,
Description Date Date 2010 2009
2010 2009
Commercial Paper
The Hartford 11/10/86 N/A $ 2,000 $ 2,000 $ — $ —
Revolving Credit Facility
5-year revolving credit facility 8/9/07 8/9/12 1,900 1,900 — —
Total Commercial Paper and Revolving
Credit Facility $ 3,900 $ 3,900 $ — $ —
While The Hartford’ s maximum borrowings available under its commercial paper program are $2.0 billion, the Company is dependent
upon market conditions to access short-term financing through the issuance of commercial paper to investors. As of December 31,
2010, the Company has no commercial paper outstanding.
The revolving credit facility provides for up to $1.9 billion of unsecured credit through August 9, 2012. Of the total availability under
the revolving credit facility, up to $100 is available to support letters of credit issued on behalf of The Hartford or other subsidiaries of
The Hartford. Under the revolving credit facility, the Company must maintain a minimum level of consolidated net worth of $12.5
billion. At December 31, 2010, the consolidated net worth of the Company as calculated in accordance with the terms of the credit
facility was $23 billion. The definition of consolidated net worth under the terms of the credit facility, excludes AOCI and includes the
Company’ s outstanding junior subordinated debentures and perpetual preferred securities, net of discount. In addition, the Company
must not exceed a maximum ratio of debt to capitalization of 40%. At December 31, 2010, as calculated in accordance with the terms of
the credit facility, the Company’ s debt to capitalization ratio was 17%. Quarterly, the Company certifies compliance with the financial
covenants for the syndicate of participating financial institutions. As of December 31, 2010, the Company was in compliance with all
such covenants.
The Hartford’ s Japan operations also maintain a line of credit in the amount of $62, or ¥5 billion, which expires January 4, 2012 in
support of the subsidiary operations.
Consumer Notes
In 2008, the Company made the decision to discontinue future issuances of consumer notes; this decision does not impact consumer
notes currently outstanding. The Company issued consumer notes through its Retail Investor Notes Program. A consumer note is an
investment product distributed through broker-dealers directly to retail investors as medium-term, publicly traded fixed or floating rate,
or a combination of fixed and floating rate, notes. Consumer notes are part of the Company’ s spread-based business and proceeds are
used to purchase investment products, primarily fixed rate bonds. Proceeds are not used for general operating purposes. Consumer notes
maturities may extend up to 30 years and have contractual coupons based upon varying interest rates or indexes (e.g. consumer price
index) and may include a call provision that allows the Company to extinguish the notes prior to its scheduled maturity date. Certain
Consumer notes may be redeemed by the holder in the event of death. Redemptions are subject to certain limitations, including calendar
year aggregate and individual limits. The aggregate limit is equal to the greater of $1 or 1% of the aggregate principal amount of the
notes as of the end of the prior year. The individual limit is $250 thousand per individual. Derivative instruments are utilized to hedge
the Company’ s exposure to market risks in accordance with Company policy. As of December 31, 2010, these consumer notes have
interest rates ranging from 4% to 6% for fixed notes and, for variable notes, based on December 31, 2010 rates, either consumer price
index plus 80 to 260 basis points, or indexed to the S&P 500, Dow Jones Industrials, foreign currency, or the Nikkei 225. The aggregate
maturities of Consumer Notes are as follows: $62 in 2011, $155 in 2012, $78 in 2013, $17 in 2014 and $70 thereafter. For 2010, 2009
and 2008, interest credited to holders of consumer notes was $25, $51 and $59, respectively.