Question-and-Answer Session
Gregory Diamond
Now we will begin the Q&A session which will last up to one hour. We are going to start with questions that have been submitted to us in writing. We have few of those. And we will address those first and then we will open up the phone lines.
All three questions that we have were anonymously submitted. First question is, are the terms of the repurchase agreement between the insurance company and the holding company established?
Chuck Chaplin
Yes, I'll respond to that. This is Chuck. The terms are established for the intercompany repo. The holding company will be paying the insurance company about LIBOR plus 200 and for drawers under this facility, it is collateralized with assets from the asset liability portfolio. The other important thing to note is that as part of the approval from the New York Insurance Department to put this in place, we used $600 million of holding company free cash into the asset liability portfolio to bolster it's liquidity, and we have agreed that that 600 will be available to the asset liability business until such time as the intercompany repo is repaid. Those are the critical terms of that agreement.
Greg Diamond
The next question. What are the terms of preferred stock being put maximum rate redemption et cetera? Are they're preferred of the insurance company or the holding company and are the puts being honored?
Chuck Chaplin
All of the terms of the preferred, which were exercised in the options on are already set in this transaction that was entered many years ago. So I believe that the documents are a matter of record. This was being financed in the auction rate market. The auctions have been failing since sometime in 2007. We have been paying the auction fail rate of LIBOR plus 200, since we were downgraded to the A2 level back in June. So all that will happen now is that we will replace the cash that’s in the trust with the preferred stock.
And the auctions will continue, although the auction period density does change after the exercise of the option goes from a 28 days cycle to a 49 day cycle. But we're expecting that those auctions continue, we continue paying a rate that's based on LIBOR plus 200. The deal does have the option to be converted to a fixed rate, but we're not considering that at this point.
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