Hartford Ready To Repay TARP Loan For $3.4 Billion

The Hartford has announced that it plans to repay the $3.4 billion it borrowed from the Treasury last year under the Troubled Asset Relief Program.

Hartford officials said the company will raise the money to repay the loan partly by raising new capital and partly from cash on hand. The company plans an offering that will include $1.45 billion of common stock, $500 million of mandatory convertible preferred stock and $425 million in cash, for a total of $2.375 billion.

The decision leaves American International Group and the Lincoln Financial Group as the only insurers that still owe money to federal agencies stemming from the economic crisis of late 2008 and early 2009.

However, the company said it does not intend to repurchase at this time the warrants to buy common stock it gave the Treasury Department in exchange for the TARP loan.

As a result, The Hartford had its credit grades affirmed by Moody's Investors Service and Fitch Ratings. Standard & Poor's reacted by affirming its existing ratings, but downgraded its outlook on the insurer's ratings from stable to negative.

S&P credit analyst Shellie Stoddard said the agency is affirming its existing ratings because that "reflects our opinion that The Hartford's brand and franchise survived a tumultuous 2008 and 2009 intact."

Ms. Stoddard said The Hartford has retained strong competitive positions in U.S. savings and retirement, group life and disability, as well as small- and middle-market commercial and personal lines property and casualty markets.

Further, it has "exited certain institutional funding and international markets and repositioned itself in the U.S. retirement market with a lower-risk variable annuity offering," she said.

However, she voiced concern that increasing industry loss cost trends in the p&c sector could erode the strength of HIG's operating earnings. In addition, net income is recovering more slowly than expected because of investment impairments and realized losses, he said.

"Despite the incremental improvement in the company's investment risk profile, we believe future losses in the investment portfolio will likely continue to slow improvement in The Hartford's net income," according to Ms. Stoddard.

She also noted that the company has a high level of exposures to certain financial instruments, such as commercial mortgage-backed securities and certain troubled sectors, specifically financial services.

The Hartford said it does not intend to repurchase the TARP warrants it provided Treasury as part of the deal to gain the $3.4 billion in TARP funds. This involves a warrant to buy about 52 million shares at an exercise price of $9.79 per share.

An additional $675 million of senior notes will be issued to prefund the repurchase of 2010 and 2011 debt maturities, Hartford officials said.

"We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets, and we are pleased to announce a plan to repurchase Treasury's investment in fewer than 10 months," said Liam E. McGee, The Hartford's chair, president and chief executive officer.

"The Hartford always viewed this investment as temporary capital and intended to return it as soon as it was prudent," he added.