U.S. Treasury Plans Auction for Hartford, Lincoln TARP Warrants

U.S. Treasury Plans Auction for Hartford, Lincoln TARP Warrants

By: Rebecca Christine & Hugh Son | September 06, 2010

Sept. 7 (Bloomberg) -- The U.S. Treasury Department plans to auction warrants tied to the bailouts of Hartford Financial Services Group Inc. and Lincoln National Corp., adding to $7.2 billion raised by similar sales and buybacks.

Warrants in the two insurers may sell for $871 million, according to Pluris Valuation Advisors LLC. The Treasury could get about $13 for each of 52 million Hartford warrants obtained by the Troubled Asset Relief Program, and $15 each for 13 million Lincoln warrants, said Espen Robak, president of New York-based Pluris.

“The warrants are valuable and should find buyers,” said Clark Troy, a senior analyst based in Chapel Hill, North Carolina, for Aite Group, a research firm. “Treasury has been able to exit TARP profitably” for some institutions, he said.

The sales may bring the Treasury closer to President Barack Obama’s goal of recouping “every single dime” of taxpayer money contributed to the $700 billion TARP fund. The U.S. bought preferred shares in financial firms to bolster their health during the credit crisis, and demanded warrants to compensate taxpayers for taking the risk.

The warrants entitle holders to buy shares at a set price for 10 years. The Treasury gives companies that repay their TARP funds a chance to negotiate a price for buying back the warrants. If that fails, a public auction is held. The biggest was for Bank of America Corp., the largest U.S. lender, whose bailout warrants sold for $1.57 billion.

U.S. Help

Hartford and Lincoln National turned to the U.S. in 2009 after investment losses and costs to protect clients from declines in the equity markets drained capital. The firms bought back Treasury’s preferred stakes this year, leaving American International Group Inc. the last insurer yet to repay its rescue.

Treasury’s Hartford warrants, which expire in 2019, allow investors to buy shares for $9.79 each, compared with the insurer’s $21.90 price at 12:45 p.m. New York Stock Exchange composite trading, a 2.7 percent decline today. Hartford, based in the Connecticut city of the same name, traded at less than $12 the day it announced receipt of its $3.4 billion bailout.

Hartford won’t bid for the warrants, Shannon Lapierre, spokeswoman for the insurer, said in an e-mailed statement. Laurel O’Brien, a spokeswoman for Lincoln, didn’t immediately return a call.

Exit Plan

Warrants for Lincoln National, the Philadelphia-based insurer that repaid its $950 million rescue in the second quarter, allow investors to purchase a share for $10.92 each. The stock dropped 5 percent today to $24.79 at 12:45 p.m.

The warrants will be sold at public auctions “over the next several weeks,” with details to be released in advance of each offering, the Treasury said. Deutsche Bank Securities Inc. is the government’s auction agent. If all the warrants are sold, the move will mark Treasury’s exit from its holdings in Hartford and Lincoln, the department said.


“The concerns that prompted the government to get involved in the first place have completely dissipated,” said Robert Haines, an analyst at CreditSights Inc. in New York. “Both the companies are fundamentally healthy now, and from an insurance capitalization standpoint, are very well-capitalized."