Diluting its ownership in Hartford Financial Services Group Inc. (HIG) on Wednesday, the US Treasury auctioned 52.1 million 10-year warrants at a sale price of $13.70 per warrant, thereby raising $706.3 million in the process. These warrants carried a minimum bidding price of $10.50 per warrant.
The sale is expected to close by September 27, 2010. Deutsche Bank Securities Inc. of Deutsche Bank AG (DB) acted as the auction agent for the Dutch auction that was organized to price HIG's warrants.
After raising about $213 million from the auction of warrants of Lincoln National Corp. (LNC) last week, the US Treasury is now attempting to recover HIG's share of cost that the US government had to incur during the recent financial crisis by lending about $700 billion to the US banks and financial companies, in order to bailout the crisis-hit companies.
However, the US Treasury had squeezed the funds received from the taxpayers in order to keep the US companies liquidated and solvent. Hence, warrants were also issued by such crisis-hit companies so as to gather additional return for the risk taken by the US Treasury.
Consequently, once the loan repayment is done by a company, the US Treasury liquidates its warrants by selling them back to the company or through public auctions. A warrant gives the purchaser the right to buy common stock at a fixed price or sometimes at steep discounts. HIG's warrants sanction the warrant-holders to purchase the HIG shares for $9.79 each, expiring on June 29, 2019.
The auction price of $13.70 means that the stock needs to be sold at $23.49 per share for an investor to recoup the $13.70 paid for the warrant and the option price of $9.79 per share.
While the US Treasury has put HIG's warrants on auction, as of September 10, it has earned back over $7 billion in gross proceeds from the warrant sales. HIG was among the top three insurers who received a loan of $3.4 billion, in June 2009, to shore up its capital during the global financial downturn. Lincoln and American International Group Inc. (AIG) were the other two insurers, of whom AIG is yet to repay its bailout amount completely to the US government. Both Lincoln and HIG have successfully repaid their loans in March and June 2010, respectively, thereby recouping their capital and financial leverage.
AMER INTL GRP (AIG): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
HARTFORD FIN SV (HIG): Free Stock Analysis Report
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
Zacks Investment Research
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After raising about $213 million from the auction of warrants of Lincoln National Corp. (LNC) last week, the US Treasury is now attempting to recover HIG's share of cost that the US government had to incur during the recent financial crisis by lending about $700 billion to the US banks and financial companies, in order to bailout the crisis-hit companies.
However, the US Treasury had squeezed the funds received from the taxpayers in order to keep the US companies liquidated and solvent. Hence, warrants were also issued by such crisis-hit companies so as to gather additional return for the risk taken by the US Treasury.
Consequently, once the loan repayment is done by a company, the US Treasury liquidates its warrants by selling them back to the company or through public auctions. A warrant gives the purchaser the right to buy common stock at a fixed price or sometimes at steep discounts. HIG's warrants sanction the warrant-holders to purchase the HIG shares for $9.79 each, expiring on June 29, 2019.
The auction price of $13.70 means that the stock needs to be sold at $23.49 per share for an investor to recoup the $13.70 paid for the warrant and the option price of $9.79 per share.
While the US Treasury has put HIG's warrants on auction, as of September 10, it has earned back over $7 billion in gross proceeds from the warrant sales. HIG was among the top three insurers who received a loan of $3.4 billion, in June 2009, to shore up its capital during the global financial downturn. Lincoln and American International Group Inc. (AIG) were the other two insurers, of whom AIG is yet to repay its bailout amount completely to the US government. Both Lincoln and HIG have successfully repaid their loans in March and June 2010, respectively, thereby recouping their capital and financial leverage.
AMER INTL GRP (AIG): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
HARTFORD FIN SV (HIG): Free Stock Analysis Report
LINCOLN NATL-IN (LNC): Free Stock Analysis Report
Zacks Investment Research
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