Hartford to Raise $2.25 Billion in Stock Sale, Repay Government

By Andrew Frye
Bloomberg News
March 18, 2010

March 18 (Bloomberg) -- Hartford Financial Services Group Inc., the bailed-out insurer that hired a new chief executive officer last year, said it plans to raise as much as $2.25 billion by selling shares to repay the U.S. government rescue.

Hartford will sell about 52.3 million common shares at $27.75 apiece and 20 million preferred shares at $25, the insurer said yesterday in a statement. Underwriters Goldman Sachs Group Inc. and JPMorgan Chase & Co. have the option to buy as much as 8 million common shares and 3 million preferred shares.

Proceeds will be used to buy back $3.4 billion in preferred shares sold to the U.S. Treasury Department last year as part of the government's financial-rescue program. The rest of the purchase price will come from a debt offering and cash on hand, said the Hartford, Connecticut-based insurer.

"They must have some good visibility into the future path of earnings and feel pretty comfortable with it," Drew Woodbury, an analyst with Morningstar Inc. in Chicago, said before the pricing was announced. "It's a sign of how open the capital markets are. Previously the government was the only reasonable source of funding."

Hartford announced plans for the stock sale on March 16 in a statement. The shares jumped 4.8 percent to $28.58 yesterday in New York Stock Exchange composite trading. The insurer has quadrupled in the past 12 months.

Hartford returned to profit in the last three months of 2009, CEO Liam McGee's first quarter on the job, after more than $4 billion of net losses in the prior 15 months. Credit-card issuer Discover Financial Services also said it plans to repay $1.2 billion in Troubled Asset Relief Program funding.

Credit Grades

Hartford had its credit grades affirmed by Moody's Investors Service and Fitch Ratings. Standard & Poor's placed the insurer's ratings on negative outlook.

"The improvement in Hartford's earnings is slower than previously expected due to impairments and realized losses on investments," S&P said. Hartford's "modest prospective financial flexibility in the face of its ongoing sensitivity to equity markets, and investment results could converge to erode the company's financial strength."

The insurer said in a filing it may use "available funds" to help with the repayment. The Treasury Department will still hold warrants to buy about 52 million Hartford shares at $9.79 each. The company said it has no plans to repurchase the warrants. Hartford said in its 2009 annual report that its common stock outstanding was 384 million shares.

Preferred Stock

The Hartford offerings will include $500 million of mandatory convertible preferred stock and $425 million of senior debt. Hartford also plans to issue an additional $675 million in senior notes to repurchase senior debt maturing in 2010 and 2011. Goldman Sachs Group Inc. and JP Morgan Chase & Co. will manage offerings for the common stock and mandatory convertible preferred shares.

Allianz SE, the German insurer that injected $2.5 billion of capital into Hartford in 2008, said in a letter filed with the Securities and Exchange Commission that it waived its right to purchase new Hartford shares in the offering.

McGee, the former Bank of America Corp. executive, is reviewing Hartford's businesses and reducing risk in the investment portfolio as he plans an April 1 presentation to outline his strategy.

Rising stock and bond markets helped return Hartford to profit. Hartford last month said net income in the fourth quarter was $557 million, its first profit in six quarters.

"Hartford always viewed this investment as temporary capital and intended to return it as soon as it was prudent," McGee said in the statement.

The insurer's investments and sales suffered in 2008 and into 2009 as an economic slump left companies and homeowners struggling to pay debt. McGee's predecessor as CEO, Ramani Ayer, secured the aid package that ranks Hartford second to American International Group Inc. among bailed-out U.S. insurers.

The Treasury Department recouped $130.2 billion of the $204.9 billion borrowed by banks under the Capital Purchase Program and about $4.3 billion from the sale of warrants, according to a March 12 transaction report.

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