Hartford To Sell $2.38B In Stock





Hartford Financial Services Group Inc. (HIG) said it will sell $2.38 billion in stock and debt to raise money to repay federal funds it received under the Troubled Asset Relief Program.

Shares fell 2.1% to $26.70 in after-hours trading. The stock has quadrupled in the past year.

The insurer, which has a market capitalization of $10.18 billion, plans to buy back $3.4 billion in its preferred shares issued to the Treasury Department in exchange for a capital infusion last year.

After the repayment, the Treasury will hold warrants to purchase about 52 million shares at an initial exercise price of $9.79 a share. Hartford doesn't plan to repurchase the warrants.

Taxpayers will win in this deal. With its common shares closing at $27.26 Tuesday, it means the government-owned warrants in Hartford are worth about $990 million, estimates Linus Wilson, professor of finance at the University of Louisiana. The Treasury hasn't disclosed plans to sell the warrants, but since Hartford had declined to buy them, the government is free to do so.

Combined with the $122 million in interest Hartford has paid the U.S. Treasury for its investment, it means taxpayers are poised to earn a total $1.1 billion on the $3.4 billion TARP investment, making it "one of Treasury's most lucrative investments," said Wilson.

Another winner will be German insurer Allianz SE (ALIZF, ALV.XE, AZSEY). It invested $2.5 billion in Hartford in 2008 and in return received warrants for 69.3 million shares in the company.

In 2009, Hartford renegotiated its agreement with Allianz extending the term of the warrants to 10 years from seven years, the same as the warrants issued the federal government. In a separate filing three days ago, the companies renewed their agreement in light of the new stock and debt offering.

The stock offerings will consist of $1.45 billion of common shares and $500 million of mandatory convertible preferred stock, represented by depositary shares.

Hartford also plans to sell $425 million in senior notes, and it will issue another $675 million in senior notes to "pre-fund" the repurchase of its senior debt maturing in 2010 and 2011.

"We appreciate the critical role the government and the American taxpayers have played in stabilizing the financial markets, and we are pleased to announce a plan to repurchase Treasury's investment in fewer than 10 months," said Chairman and Chief Executive Liam McGee.

He pointed out the company ended 2009 with a strong capital position and its core earnings improved in the fourth quarter for the third quarter in a row.

After stock and bond markets rebounded sharply last year, the four giant U.S. banks--Bank of America Corp. (BAC), JPMorgan Chase & Co. (JPM), Citigroup Inc. (C) and Wells Fargo & Co. (WFC)--repaid a combined $95 billion in TARP money, in part to escape regulations on pay for their high-priced employees.

Every bank that has repaid TARP aid has raised capital by selling shares as part of the process. Such stock sales can hurt current investors by diluting the value of their shares.