Hartford Prices Notes – Analyst Blog

As part of its plan to repay the entire $3.4 billion of bailout money it received from the government for participating in the Troubled Asset Relief Program (TARP) at the height of the credit crisis, Hartford Financial Services Group Inc. (HIG) announced the pricing of its public offering of $1.1 billion in senior notes. This offering is part of the company’s plan to raise $3.05 billion by issuing new securities.

 

The $1.1 billion notes of Hartford will consist of $300 million of 4.0% senior notes due March 30, 2015, $500 million of 5.5% senior notes due March 30, 2020 and $300 million of 6.625% senior notes due March 30, 2040.

 

Hartford intends to use only $425 million of the net proceeds from the current notes offering to repurchase preferred shares worth $3.4 billion issued to the U.S. Treasury. The rest will partly be used to pre-fund existing senior debt due in 2010 and 2011.

 

On a separate note, regional bank Comerica Inc. (CMA) said on Wednesday that it has repaid the entire $2.25 billion of TARP money. Also, earlier this week, Discover Financial Services (DFS) said that it has received the regulatory approval to repay $1.2 billion of TARP money it received from the government.

 

After incurring sturdy credit losses, Hartford reduced its dividend and raised billions of dollars in private and public transactions last year. It has also reduced headcount to stabilize its financial position.

 

Nevertheless, during the fourth quarter of 2009, Hartford returned to profitability for the first time since mid-2008. Hartford’s core earnings during the quarter came in at $1.51 per share, substantially ahead of the Zacks Consensus Estimate of $1.40. This also compares favorably with the core loss of 72 cents in the year-ago quarter.

 

The upside was primarily attributable to stability in Hartford’s life and property and casualty businesses. Also, Hartford ended the year with a strong capital position. Despite the overall market conditions remaining timid, Hartford delivered strong underwriting results. During the fourth quarter, rising stock markets helped strengthen investment income in the company’s life insurance business.

 

However, the results suffered from losses in Hartford’s investment portfolio and higher costs related to the variable-annuity business. We remain concerned with Hartford’s exposure to variable annuities and pressure on Life segment as consumers seek relatively safe investment vehicles for their retirement assets.

 

Most of the major institutions in the financial market such as JPMorgan Chase and Co. (JPM), Bank of America Corp. (BAC), Wells Fargo & Co. (WFC) and Goldman Sachs Group Inc. (GS) have repaid the TARP loan. Also, the Treasury has started auctioning stock warrants it acquired from the banks that received a significant portion of taxpayers’ money and have fully repaid the same.