Hartford: TARP Could Trigger Payments Under Allianz Deal
13 June 2009 - 12:48AM
Dow Jones News
In its prospectus for its $750 million common stock offering,
life insurer Hartford Financial Services Group Inc. (HIG) outlined
some of the complications of its acceptance of capital from the
Treasury's TARP program, including payments that could be triggered
to an earlier investor, Allianz SE (AZ).
Hartford, along with five other life insurers, sought to
participate in the Treasury program. In May, Treasury said the 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
less than the $3.4 billion it has asked for, the document 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.
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 reduced to $200 million, from its original
agreement for an amount ranging from $50 million to $300 million,
and extended the payment due date to October 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 approvals. 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."
Restructuring charges in the quarter will also affect results,
the company said.
Shares of Hartford sank in early trading and were down 6.7%
recently.
-By Lavonne Kuykendall, Dow Jones Newswires; (312) 750 4141;
lavonne.kuykendall@dowjones.com
(Gee L. Lee contributed to this report.)