Moody's rates new Hartford senior debt 'stable'

NEW YORK

Moody's Investors Service has assigned a stable rating of Baa3 to $1.1 billion of new senior debt that The Hartford Financial Services Group Inc. plans to sell to help pay off its federal bailout.

The Hartford notes are to be sold as part of a $3.05 billion capital-raising plan for the insurance conglomerate. Most of the proceeds will go to help repay the $3.4 billion that The Hartford received as part of the federal bailout program.

The plan to repay Treasury includes the $1.1 billion in senior debt, $1.45 billion in newly issued common stock, $500 million of convertible preferred stock and some cash the Hartford has on hand.

Moody's senior credit officer Paul Bauer said if the plan is successful, it will show that the financial markets support the company.

The company will need approval from regulators before it can repay the money.

In a news release, Bauer said it is "a modest negative" that The Hartford will be using some cash to repay the bailout. But he said the company still has enough money to support additional losses from its life insurance division.

Like other big insurers, The Hartford is losing money on financial investments. It also is bearing the cost of paying variable-rate annuities at guaranteed minimum rates despite the weak financial markets.

Yet the company still has favorable debt and financial strength ratings thanks to its profitable property and casualty insurance subsidiaries, Moody's said.

Moody's expects The Hartford to lose no more than $1.75 billion on investments and to maintain a debt-to-capital ratio under 40 percent.

At the height of the financial crisis in fall 2008, the government committed $700 billion of taxpayer funds to help banks in the so-called Troubled Asset Relief Program, or TARP. Hundreds of U.S. banks participated and received a cash investment from the Treasury Department in exchange for preferred stock. Many financial institutions have been raising money in the capital markets to repay their shares.

The program officially ends in October.

After its repayment, Hartford Financial said, the Treasury Department will continue to hold warrants to buy about 52 million shares of its common stock at an exercise price of $9.79 a share. The company said it doesn't intend to repurchase the warrants. Hartford Financial shares finished at $27.28 in trading Friday, down 58 cents, or 2.1 percent, from Thursday.

In January 2009 the Office of Thrift Supervision, a Treasury Department agency, approved applications from Hartford Financial and other insurers and financial services firms to acquire existing savings and loans and thereby become thrift holding companies. That made them eligible to apply for a piece of the $700 billion in federal rescue funds.

The moves came at a time when insurers, hit hard by the financial meltdown, saw their shares plunge and feared that growing investment losses could cripple the industry further.