Debt

6 Months Ended

Jun. 30, 2011

Debt

Debt

4. Debt

Debt consists of the following:

(In millions)	June 30, 2011			December 31, 2010
Senior debentures (unsecured) maturing March 1, 2020	$	200.0		$	200.0
Senior debentures (unsecured) maturing June 15, 2021		300.0			—
Senior debentures (unsecured) maturing October 15, 2025		121.6			121.6
Junior debentures		74.2			129.2
FHLBB borrowings		143.4			134.5
Capital securities		18.0			18.0
Surplus notes		4.0			4.0
Total principal debt	$	861.2		$	607.3
Unamortized fair value adjustment		(0.4	)		(0.5	)
Unamortized debt issuance costs		(2.9	)		(0.9	)
Total	$	857.9		$	605.9

On June 17, 2011, the Company issued $300 million aggregate principal amount of 6.375% senior unsecured notes due June 15, 2021. The senior debentures are subject to certain restrictive covenants, including limitations on the issuance or disposition of capital stock of restricted subsidiaries. These debentures pay interest semi-annually. The Company is in compliance with the covenants associated with this indenture.

In December 2010, the Company repurchased $36.5 million of Series B 8.207% Subordinated Deferrable Interest Debentures ("Junior Debentures") at a cost of $38.5 million, resulting in a $2.0 million loss on the repurchase. On February 15, 2011, the Company repurchased $48.0 million of Junior Debentures at a cost of $50.5 million, resulting in a loss of $2.5 million on the repurchase. On June 28, 2011, the Company repurchased an additional $7.0 million of Junior Debentures at a cost of $6.7 million, resulting in a gain of $0.3 million on the repurchase. Total aggregate repurchases in 2011 were $55.0 million at a cost of $57.2 million, resulting in a net loss of $2.2 million.

The Company borrowed $125.0 million in 2009 from Federal Home Loan Bank of Boston ("FHLBB"). In July 2010, the Company committed to borrow an additional $46.3 million from FHLBB to finance the development of the City Square Project. These borrowings will be drawn in several increments from July 2010 to January 2012. These additional amounts mature on July 20, 2020 and carry fixed interest rates with a weighted average of 3.88%. Through June 30, 2011, the Company has borrowed $18.4 million under this arrangement. All interest associated with the $46.3 million will be capitalized through the construction phase of the City Square Project.

As collateral to FHLBB, Hanover Insurance pledged government agency securities with a fair value of $176.0 million and $162.7 million, for the aggregate borrowings of $143.4 million and $134.5 million as of June 30, 2011 and December 31, 2010, respectively. The fair value of the collateral pledged must be maintained at certain specified levels of the borrowed amount, which can vary depending on the type of assets pledged. The Company is in compliance with the covenants associated with these borrowings. If the fair value of this collateral declines below these specified levels, Hanover Insurance would be required to pledge additional collateral or repay outstanding borrowings. Hanover Insurance is permitted to voluntarily repay the outstanding borrowings at any time, subject to a repayment fee. As a requirement of membership in the FHLBB, Hanover Insurance maintains a certain level of investment in FHLBB stock. Total purchases of FHLBB stock were $8.7 million and $8.6 million at June 30, 2011 and December 31, 2010, respectively.

In April 2011, the Company entered into a bridge credit agreement for borrowings in an aggregate principal amount of up to $180 million to be used solely in connection with the acquisition of Chaucer. This bridge agreement terminated upon the issuance, on June 17, 2011, of the aforementioned $300 million aggregate principal amount of 6.375% senior unsecured notes. See Note 3 – "Acquisitions" for additional information.