Unum 2015 Annual Report Download - page 138

Notes To Consolidated Financial Statements
136 Unum 2015 Annual Report
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, 2015, 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. During 2015, 2014, and 2013, Northwind Holdings made principal
payments of $74.4 million, $41.6 million, and $60.0 million, respectively, on the Northwind notes.
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. 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 2014, we purchased and retired $145.0 million principal of our 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. The remaining $151.9 million balance of these notes matured in November 2015.
Fair Value Hedges
As of December 31, 2015 and 2014, we had $600.0 million notional amount interest rate swaps which effectively convert certain of
our unsecured senior notes into floating rate debt. Under these agreements, we receive fixed rates of interest and pay variable rates of
interest, based off of three-month LIBOR. See Note 4 for further information on our interest rate swaps.
Junior Subordinated Debt Securities
In 1998, Provident Financing Trust I (the trust), a 100 percent-owned finance subsidiary of Unum Group, issued $300.0 million of 7.405%
capital securities in a public offering. These capital securities are fully and unconditionally guaranteed by Unum Group, have a liquidation
value of $1,000 per capital security, and have a mandatory redemption feature under certain circumstances. Unum Group issued 7.405%
junior subordinated deferrable interest debentures to the trust in connection with the capital securities offering. The debentures mature in
2038. The sole assets of the trust are the junior subordinated debt securities.
Interest Paid
Interest paid on long-term and short-term debt and related securities during 2015, 2014, and 2013 was $146.9 million, $145.9 million,
and $144.6 million, respectively.