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By MATTHEW STURDEVANT, firstname.lastname@example.org
The Hartford Courant
10:39 AM PDT, April 2, 2012
Allianz, the German insurer that bought the right to buy 16 percent of The Hartford's shares when it gave the then-troubled Hartford company a $2.5 billion cash infusion in 2008, will not exercise that right.
Instead, The Hartford financial Services Group plans to pay back its debt to Allianz and buy outstanding warrants that entitle the German insurer to buy 69.3 million shares of The Hartford's stock.
The move will give The Hartford more flexibility as it undergoes a major transformation, with hopes of selling off parts of its life insurance business in the next year or 18 months.
The Hartford has been paying back part of the debt, and said Monday it plans to spend another $2.45 billion to repurchase securities for all outstanding "junior subordinated debentures" and outstanding warrants from Allianz SE.
There were some concerns at the time of the 2008 infusion that Allianz would use the foothold as a step toward taking over The Hartford — although executives at The Hartford said all along they intended for the company to remain independent.
The Hartford plans to issue senior notes and junior subordinated debt to finance the repurchase, which the property-casualty and life insurer said would give it a better capital structure. The company said the transactions will likely reduce its annual interest expense by replacing high-interest coupon debt with lower coupon debt.
The Hartford will repurchase the Allianz warrants for $300 million as part of an existing equity repurchase program.
After the transactions, Allianz will hold 5 percent of the company's outstanding common stock. At the time of the original investment in 2008, the shares Allianz had a right to purchase would have given it a much higher percentage of The Hartford's shares — about one-quarter. But the Hartford issued additional shares to pay back the federal TARP bailout.
The warrants and debt were issued to Allianz in 2008 in exchange for $2.5 billion to help stabilize The Hartford as it struggled with investment losses on mortgage-backed securities and as volatile markets shook up the company's variable-annuity business.
The company expects to close on the repurchases on April 17, but it could be deferred, The Hartford said.
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