Posted on 30 Jun 2009
The Hartford Financial Services Group, Inc. announced on Friday that it 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.
"This investment further enhances our financial flexibility and our capacity to weather significant deterioration in the equity and debt markets, as well as the general economy," said Ramani Ayer, chairman and chief executive officer of The Hartford. "We have recently taken a number of critical steps to set the company on a strategic course to build value for our partners, shareholders, employees and distributors. We are pleased that rating agencies and others have responded positively to these actions and the added financial flexibility provided by the CPP investment."
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. 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," said Lizabeth Zlatkus, chief financial officer of 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."
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