Debt And Credit Arrangements

9 Months Ended

Sep. 30, 2011

Debt And Credit Arrangements [Abstract]

Debt And Credit Arrangements

4. Debt and Credit Arrangements

Debt consists of the following:

(in millions)	September 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		59.7			129.2
Subordinated note maturing November 16, 2034		16.1			—
Subordinated note maturing September 21, 2036		50.0			—
FHLBB borrowings		152.8			134.5
Capital securities		7.0			18.0
Surplus notes		—			4.0
Total principal debt	$	907.2		$	607.3
Unamortized fair value adjustment		(2.5	)		(0.5	)
Unamortized debt issuance cost		(3.1	)		(0.9	)
Total	$	901.6		$	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. At September 30, 2011, the Company was in compliance with the covenants associated with this indenture.

In 2011, the Company repurchased in several transactions, $69.5 million of Series B 8.207% Subordinated Deferrable Interest Debentures ("Junior Debentures") at a cost of $72.0 million, resulting in a net loss of $2.5 million on the repurchases. In addition, the Company repurchased $4.0 million of surplus notes outstanding related to AIX Holdings, Inc ("AIX"), $8.0 million of capital securities related to AIX and $3.0 million of capital securities related to Professionals Direct, Inc.

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 September 30, 2011, the Company has borrowed $27.8 million under this arrangement. 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 $192.3 million and $162.7 million, for the aggregate borrowings of $152.8 million and $134.5 million as of September 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. At December 31, 2011, the Company was 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 $8.9 million and $8.6 million at September 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.

On July 1, 2011, the Company acquired all of the outstanding shares of Chaucer. In 2004, Chaucer issued €12 million aggregate principal amount of floating rate subordinated unsecured notes due November 16, 2034. These notes pay interest semi-annually based on the European Inter bank offer rate (Euribor), plus an agreed margin of 3.75%. These notes are converted from Euro to GBP at current rates and then translated to U.S. dollars based upon the September 30, 2011 exchange rate between GBP and U.S. dollars of 1.56. Additionally, in 2006, Chaucer issued $50 million aggregate principal amount of floating rate subordinated unsecured notes due September 21, 2036. These notes pay interest quarterly based on the U.S. dollar 3-month Libor, plus an agreed margin of 3.1%.

On August 2, 2011, the Company entered into a $200.0 million committed syndicated credit agreement which expires in August 2015. Borrowings, if any, under this agreement are unsecured and incur interest at a rate per annum equal to, at the Company's option, a designated base rate or the U.S. dollar Libor plus applicable margin. The agreement provides covenants, including but not limited to, requirements to maintain a certain level of consolidated equity, consolidated leverage ratios, and an RBC ratio in the Company's primary U.S. domiciled property and casualty companies of 175%. There were no borrowings under this agreement during 2011.

In 2010, Chaucer entered into a £90.0 million Standby Letter of Credit Facility (Standby Facility) that is used to provide regulatory capital supporting Chaucer's underwriting through two managed syndicates. The Standby Facility expires on December 31, 2015. Chaucer pays an annual commitment fee of 1.14 percent. The Standby Facility contains restrictive financial covenants, including but not limited to, maintaining a minimum consolidated tangible net worth and a leverage ratio of less than or equal to 35 percent for Chaucer. We collateralized £10 million of the facility under the terms of the agreement. We were in compliance with the covenants at September 30, 2011.