Hartford To Sell $750M In Stock, Seek Up To $3.4B TARP
By Lavonne Kuykendall
Dow Jones Newswires
June 12, 2009
CHICAGO (Dow Jones)--In addition to the $3.4 billion it is seeking from the Treasury, Hartford Financial Services Group Inc. (HIG) said Friday that it will sell up to $750 million in stock to further bolster its capital position as it prepares to report more investment losses in the second quarter.
The capital-raising moves would trigger a payment due to its biggest investor, E.U. insurer Allianz SE (AZ), and Hartford said Friday in a Securities and Exchange Commission filing that it had modified the terms of that deal to reduce the payment due and to relax some other terms.
Hartford announced its plans to sell the stock as it again affirmed that it will participate in the Treasury Department's Troubled Asset Relief Program.
Hartford, along with several other life insurers, sought to participate in the Treasury program. In May, Treasury said six life insurers would be accepted into the program, but so far Hartford is the only insurer to announce that it will go through with the deal.
The amount it will actually receive from Treasury is still "subject to further discussions," and the company could receive "substantially" less than the $3.4 billion it has asked for, the filing said.
In an interview last week, Ramani Ayer, Hartford's chairman and chief executive, said he expected the company to receive the full $3.4 billion by mid-June. A spokeswoman said Friday that it still expects to finalize its TARP application by mid-June.
Ayer said last week that he expects to retire by the end of the year, and the company is searching for an external replacement.
In its filing Friday, Hartford said that receiving Treasury capital will place the company under "significant" restrictions on executive pay and bonuses that may affect its ability to attract key personnel.
It also acknowledges the risk that taking money could damage the company's reputation, "which could adversely affect our competitive position and results, including new product sales and policy retention rates, and depress trading prices for our common stock," the filing said.
The deal would trigger payments under its October deal with insurer Allianz, the prospectus said.
Hartford said that earlier in the week, it amended its agreement with Allianz to reduce the amount of payments it would make to Allianz if it issues equity-related instruments worth more than 5% of the company's stock outstanding at the time, which the TARP deal would presumably do.
The payment would be adjusted to $200 million, from its original agreement for an amount ranging from $50 million to $300 million, and extended the payment due date to Oct. 15.
Hartford received a $2.5 billion capital investment from Allianz in the October deal, under which Allianz purchased, at $31 a share, $750 million of preferred shares convertible to common stock and $1.75 billion of 10% junior subordinated debentures.
Also, Allianz received warrants that entitle it to purchase $1.75 billion of common stock at an exercise price of $25.32 a share, subject to shareholder approval. The warrants originally expired in seven years, and the amendment extends the warrants to 10 years.
It also amends some transfer restrictions in the investment pact that prohibit, for a three-year period, any transfer of warrants, or securities acquired upon exercise of the warrants, except to specified affiliates of Allianz, among other changes.
In its prospectus, Hartford offered further details of problems it is likely to face in the second quarter.
"We expect that our second quarter 2009 results will include significant charges resulting from other-than-temporary impairments of our securities portfolio that are similar in magnitude to the impairments we recognized in each of the fourth quarter of 2008 and the first quarter of 2009," the company said.
At the end of the first quarter, Hartford's total investments were $88.5 billion and the net unrealized losses on its investments were $6.9 billion. Hartford said then it expected 2009 core earnings per diluted share to be between 5 cents and 45 cents including the $1.5 billion after-tax charge it took in the first quarter related to deferred amortized costs on its variable annuity portfolio.
In May, Hartford announced a quarterly dividend of five cents per share, and the receipt of TARP capital will likely lead to restrictions on the company's ability to increase its dividend above that amount, the company said.
Shares of Hartford dropped throughout the day, recently trading down 8.2% to $12.92. Other life insurers also traded down, with Lincoln National Corp. (LNC) the only other life insurer that has said it might take TARP, down 5.7% in recent trading, to $17.87.
(Kerry E. Grace and Gee L. Lee contributed to this report.)
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