Hartford launches $600 million mandatory at 7.0-7.5% yield,, up 18-22%

By Ronda Fears

Nashville, May 14 - The Hartford Financial Services Group Inc. launched a $600 million 3.25-year mandatory, which is part of a $1.85 billion capital-raising effort, with talk of a yield of 7.0% to 7.5% and an 18% to 22% initial conversion premium.

Bookrunner is Goldman, Sachs & Co.

The mandatory is scheduled to price sometime next week.

Hartford also plans a $1 billion stock offering and a $250 million straight bond deal.

Joint lead managers along with Goldman are Morgan Stanley and UBS Warburg.

Co-managers include A.G. Edwards & Sons Inc., Banc of America Securities, Citigroup, Edward D. Jones & Co., JPMorgan, Merrill Lynch & Co., SunTrust Robinson Humphrey, Wachovia Securities and Wells Fargo Securities.

The mandatory will be noncallable.

The issue is expected to be rated A2 by Moody's Investors Service and A- by Standard & Poor's Corp.

At the midpoint of guidance and with Hartford shares at $45.83 and yielding 2.4%, Lehman Brothers analysts put the new mandatory at 1.55% cheap, using a credit spread of 150 basis points over Treasuries and a 27% to 30% stock volatility skew.

Venu Krishna, head of U.S. convertible research at Lehman, noted that year to date new mandatory convertibles have priced on average 2.08% cheap. He also noted that considering the common dividend the new mandatory offers just a 485 bps yield advantage over the common.

Hartford announced the capital-raising plan after boosting its asbestos reserves on Monday by $2.6 billion and a 5% workforce reduction.

On Tuesday, the company reported a net loss of $1.4 billion, or $5.46 a share, versus a profit of $292 million, or $1.17 a share, a year earlier. The quarterly loss included a $1.7 billion after-tax charge for increased reserves.

Hartford shares closed Wednesday up 1c, or 0.02%, to $45.84. The existing 6% mandatory ended unchanged at 49 on the New York Stock Exchange.

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