Hartford Financial Services Group Inc., Hartford, Conn., reports that it has accepted all of the $3.4 billion approved from the federal Troubled Asset Relief Program. The funds represent a loan that includes a 5% annual dividend and provides the U.S. Treasury Department with the option to purchase as much as $510 million in company stock at $9.79 a share. Within the past few weeks, the Hartford announced a plan to sell $750 million in stock to raise further capital.
"Applying for participation in the [Capital Purchase Program] CPP was a prudent step for The Hartford, particularly given the continued economic uncertainty," said Ramani Ayer, Hartford's chairman and CEO, in a statement when Hartford's approval was announced. "These funds would further fortify our capital resources, and provide us with additional financial flexibility during one of the most volatile market climates in our nation's history," BestWire quoted Ayer as saying.
Hartford Financial Services Group is not the only major insurance company receiving preliminary approval for funds, though some others have chosen not to take it. Lincoln National Corp., agreed to $950 million in CPP aid.
Prudential Financial Inc. reports it chose an alternative: a $1.25 billion offering of common stock. Other insurers, including Allstate Corp. and Ameriprise Financial, also declined TARP funds.
Meanwhile, the new manager of the government's $700 billion financial services bailout program says he sees signs the economy is on the mend even though high unemployment and falling home prices remain a threat.
In prepared testimony for a congressionally appointed panel, Herbert Allison, former head of mortgage buyer Fannie Mae, said last Wednesday that it is critical for the government to remain vigilant and "press ahead" with recovery efforts.
Allison is the former head of mortgage buyer Fannie Mae. This month, the Senate confirmed him in his new role overseeing the Troubled Asset Relief Program, established last fall to inject capital into banks hit hard from the mortgage crisis.
The decision to accept CPP funds is not without its consequences. Members of The Hartford have a current A.M Best's Financial Strength Rating of A (Excellent), and on the afternoon of June 29, Hartford's stock was trading at $12.19 a share, up 2.7% from the previous close.
However, Fitch Ratings, citing The Hartford's exposure to the volatile credit and investment market conditions, downgraded and removed from Rating Watch Negative the following (HFSG) ratings:
• $500 million 8.125% junior subordinated debentures due 2068 to 'BB' from 'BB+'
• $1.75 billion 10% junior subordinated debentures due 2068 to 'BB' from 'BB+'
Fitch also assigned a 'BB' rating to The Hartford's senior perpetual preferred stock issued under the U.S. Treasury's Capital Purchase Program (CPP). The Rating Outlook is Negative. The Issuer Default Rating (IDR) and senior debt ratings of HFSG and the Insurer Financial Strength (IFS) ratings of The Hartford's primary life and property/casualty insurance subsidiaries remain unchanged with a Negative Rating Outlook. However, if the company is able to improve its earnings and generate internal capital growth, the outlook could return to Stable.
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