The Hartford Financial Services Group has closed on a definitive investment agreement for its participation in the United States Department of Treasury's Capital Purchase Program (CPP) in the amount of $3.4 billion in perpetual preferred stock of the company, according to a press release issued by the company. The company announced its intention to participate earlier this month.
Under the agreement, Treasury's investment in the company is in the form of non-voting senior preferred shares with a cumulative annual dividend of 5 percent for the first five years and 9 percent thereafter, according to the company source. Treasury also received warrants to purchase common stock equal to 15 percent of the preferred investment, or $510 million. The exercise price of the warrants is $9.79 per share, equal to the average closing price of The Hartford's common stock in the 20 trading days preceding the date of Treasury's preliminary approval of The Hartford's participation in the CPP.
"We believe that holding additional capital to protect The Hartford's franchise is ultimately in the interests of our shareholders, customers and other stakeholders," comments Lizabeth Zlatkus, chief financial officer, The Hartford. "Until such time as the markets, as well as the broader economy, are on more stable footing, we believe this is the prudent course for The Hartford. In addition, our previously announced $750 million discretionary equity issuance program remains in place. As stated earlier, the program is purely discretionary and, as such, we will issue shares only as we deem appropriate. Over time, we intend to continue to opportunistically raise equity capital through the program to reduce leverage and begin to restructure our balance sheet consistent with our longer-term objectives. In line with these objectives and in light of recent conditions in the capital markets, we have chosen to limit sales under the program, issuing about 1.2 million shares to date."
Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio