2nd UPDATE: Hartford To Buy $2.43 Billion In Securities From Allianz
April 02 2012 - 12:06PM
Dow Jones News
Hartford Financial Services Group Inc. (HIG) agreed to pay $2.43
billion to buy back securities it sold to Allianz SE (ALV.XE,
ALIZF, AZSEY) in the depths of the financial crisis.
The agreement allows Hartford to replace $1.75 billion of debt
it owes to Allianz--which was yielding the German insurer 10% a
year--with new debt at a lower cost. John Nadel, an analyst at
Sterne Agee, estimated Monday that Hartford could save between $50
million and $75 million in interest expenses annually.
Hartford will also pay Allianz $300 million to buy back warrants
that entitled the German insurer to purchase 69.4 million shares of
Hartford's stock for $25.32 each. Hartford's stock rose 2.5% to
$21.61 in recent trading.
The agreement leaves Allianz with about 5% of Hartford's
outstanding shares, but otherwise closes the book on an October
2008 investment that helped to shore up Hartford's balance sheet
when capital markets were frozen and investors were beginning to
question the company's ability to survive the financial crisis.
Hartford later needed a $3.4 billion bailout from the U.S.
government, which the company repaid in 2010.
An Allianz spokesman said Allianz's average return on the
Hartford investment had been 15% annually.
The agreement disclosed Monday frees up about EUR1.5 billion ($2
billion) in capital that Allianz, Europe's largest insurer by
premium income and market capitalization, had to set aside for the
investment, which can now be used for other things.
The transaction should also ease market speculation that Allianz
was interested in buying Hartford outright. Such rumors regularly
surfaced in Europe even though Allianz executives had repeatedly
said they considered the Hartford stake to be a financial
investment, rather than a strategic one. Allianz also owns Pacific
Investment Management Co., or Pimco, and Fireman's Fund, an
insurance and risk-management company.
The deal with Allianz comes as Hartford Chief Executive Liam
McGee embarks on an effort to shed low-return businesses and boost
the company's share price. Last month, Hartford disclosed plans to
exit the variable-annuity business and put its life-insurance arm
up for sale to focus on its property-and-casualty insurance
business.
Hartford agreed to pay about $2.1 billion plus interest to
retire the junior subordinated debt held by Allianz ahead of
schedule. Under terms of their 2008 agreement, Hartford had the
option to redeem the notes beginning in 2018.
The gains from the deal on top of the 10% coupon from the debt
have "vindicated Allianz's original investment," Credit Suisse
analyst Thomas Gallagher said in a note to clients.
After disclosure of the deal on Monday, Hartford issued
prospectuses for new senior and junior notes to raise money to buy
back Allianz's investment.
The debt repurchase requires the approval of investors who hold
another series of notes issued by Hartford that pays 6.1%.
The warrants that Hartford is repurchasing would have raised
Allianz's equity stake to nearly 20%, had the German insurer
exercised them within a seven-year window that would have expired
in 2015.
Repurchase of the warrants will be counted as part of Hartford's
existing $500 million equity-repurchase program. The deal leaves
Hartford with a remaining buyback authorization of about $106
million, which the company "intends to complete on a timely basis,"
according to a statement Monday.
Repurchase of both the warrants and the debt is scheduled for
April 17, though Hartford has the option to delay the repurchase of
the debt if needed.
-By Erik Holm, Dow Jones Newswires; 212-416-2892;
erik.holm@dowjones.com
--Kristin Jones contributed to this article.