Debt

White Mountains’ debt outstanding as of December 31, 2012 and 2011 consisted of the following:



Millions	December 31, 2012			December 31, 2011
2012 OBH Senior Notes, at face value	$	275.0		$	—
Unamortized original issue discount	(.3		)	—
2012 OBH Senior Notes, carrying value	274.7			—
2003 OBH Senior Notes, at face value	—			269.9
Unamortized original issue discount	—			(.1		)
2003 OBH Senior Notes, carrying value	—			269.8
SIG Senior Notes, at face value	400.0			400.0
Unamortized original issue discount	(.6		)	(.7		)
SIG Senior Notes, carrying value	399.4			399.3
WTM Bank Facility	75.0			—
Old Lyme Note	2.1			2.1
Other debt ⁽¹⁾	—			6.3
Total debt	$	751.2		$	677.5

⁽¹⁾ Other debt represents debt of Hamer and Bri-Mar, which are no longer consolidated as of October 1, 2012. See Note 16.

A schedule of contractual repayments of White Mountains’ debt as of December 31, 2012, follows:



Millions	December 31, 2012
Due in one year or less	$	—
Due in two to three years	75.0
Due in four to five years	402.1
Due after five years	275.0
Total	$	752.1

2012 OBH Senior Notes

In November 2012, OneBeacon U.S. Holdings, Inc. (“OBH”), an intermediate holding company of OneBeacon, issued $275 million face value of senior unsecured debt (the "2012 OBH Senior Notes") through a public offering, at an issue price of 99.9% and received $272.9 million of proceeds. The 2012 OBH Senior Notes bear an annual interest rate of 4.6% payable semi-annually in arrears on May 9 and November 9, until maturity on November 9, 2022, and are fully and unconditionally guaranteed as to the payment of principal and interest by OneBeacon Ltd.

OBH incurred $2.8 million in expenses related to the issuance of the 2012 OBH Senior Notes (including $1.8 million in underwriting fees), which have been deferred and are being recognized into interest expense over the life of the 2012 OBH Senior Notes. Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the 2012 OBH Senior Notes have an effective yield to maturity of approximately 4.7% per annum.

OBH recorded $1.8 million in interest expense on the 2012 OBH Senior Notes for the year ended December 31, 2012.

2003 OBH Senior Notes

In May 2003, OBH issued $700.0 million face value of senior unsecured debt (the “2003 OBH Senior Notes”) through a public offering, at an issue price of 99.7% and received $693.4 million of proceeds. The 2003 OBH Senior Notes had an annual interest rate of 5.875%, payable semi-annually in arrears on May 15 and November 15, until maturity in May 2013. White Mountains fully and unconditionally guaranteed the payment of principal and interest on the 2003 OBH Senior Notes for a fee equal to 25 basis points per annum on the outstanding principal amount of the 2003 OBH Senior Notes.

OBH incurred $7.3 million in expenses related to the issuance of the 2003 OBH Senior Notes (including $4.5 million in underwriting fees), which were recognized into interest expense over the life of the 2003 OBH Senior Notes. Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, the 2003 OBH Senior Notes had an effective yield to maturity of approximately 6.0% per annum. OBH recorded $15.1 million, $20.5 million and $29.5 million in interest expense, inclusive of amortization of issuance costs, on the 2003 OBH Senior Notes for the years ended December 31, 2012, 2011 and 2010.

On June 1, 2010, through a cash tender offer, OBH repurchased and retired $156.4 million aggregate principal amount of 2003 OBH Senior Notes for an aggregate purchase price of $165.4 million, which resulted in a $9.6 million loss, including transaction fees.

In addition to the cash tender offer, during 2010 OBH repurchased and retired $29.7 million of outstanding 2003 OBH Senior Notes for $30.8 million, which resulted in a $1.2 million loss and OBIC purchased $1.1 million of outstanding 2003 OBH Senior Notes for $1.1 million.

On April 6, 2011, through a cash tender offer, OBH purchased and retired $150.0 million aggregate principal amount of 2003 OBH Senior Notes for $161.6 million, which resulted in a $12.0 million loss, including transaction fees.

In December 2012, OBH repurchased the remaining $269.8 million of 2003 OBH Senior Notes for $275.9 million, which resulted in a $6.3 million loss, including transaction fees and the write-off of the remaining $0.2 million in unamortized deferred costs and original issue discount at the time of repurchase, in the year ended December 31, 2012.

SIG Senior Notes

In March 2007, SIG issued $400.0 million face value of senior unsecured notes (“SIG Senior Notes”) at an issue price of 99.715% for net proceeds of $392.0 million after taking into effect both deferrable and non-deferrable issuance costs, including the interest rate lock agreement described below. The SIG Senior Notes were issued in an offering that was exempt from the registration requirements of the Securities Act of 1933. The SIG Senior Notes bear an annual interest rate of 6.375%, payable semi-annually in arrears on March 20 and September 20, until maturity in March 2017.

SIG incurred $3.6 million in expenses related to the issuance of the SIG Senior Notes (including $2.6 million in underwriting fees), which have been deferred and are being recognized into interest expense over the life of the SIG Senior Notes.

In anticipation of the issuance of the SIG Senior Notes, SIG entered into an interest rate lock agreement to hedge its interest rate exposure from the date of the agreement until the pricing of the SIG Senior Notes. The agreement was terminated on March 15, 2007 with a loss of $2.4 million, which was recorded in other comprehensive income. The loss is being reclassified from accumulated other comprehensive income over the life of the SIG Senior Notes using the interest method and is included in interest expense. At December 31, 2012, the unamortized balance of the loss remaining in accumulated other comprehensive income was $1.2 million.

Taking into effect the amortization of the original issue discount and all underwriting and issuance expenses, including the interest rate lock agreement, the SIG Senior Notes yield an effective rate of approximately 6.5% per annum. White Mountains recorded $26.2 million of interest expense, inclusive of amortization of issuance costs and the interest rate lock agreement, on the SIG Senior Notes for the years ended December 31, 2012, 2011, and 2010.

WTM Bank Facility

On August 12, 2011, White Mountains entered into a revolving credit facility with a total commitment of $375.0 million (the “WTM Bank Facility”) with a syndicate of lenders administered by Bank of America, N.A. that has a maturity date of August 12, 2015. The WTM Bank Facility replaces the previous revolving credit facility which had a total commitment of $475.0 million. White Mountains recorded $1.7 million, $3.1 million and $1.1 million of interest expense on the WTM Bank Facility for the years ended December 31, 2012, 2011 and 2010.

In December 2012, White Mountains borrowed $150.0 million under the WTM Bank Facility at a blended interest rate of 3.53%. White Mountains repaid $75.0 million in December 2012. As of December 31, 2012, White Mountains had a balance of $75.0 million outstanding under the revolving credit facility, which was fully repaid in January 2013.

The WTM Bank Facility contains various affirmative, negative and financial covenants which White Mountains considers to be customary for such borrowings, including certain minimum net worth and maximum debt to capitalization standards. Failure to meet one or more of these covenants could result in an event of default, which ultimately could eliminate availability under these facilities and result in acceleration of principal repayment on any amounts outstanding.

Old Lyme Note

On December 31, 2011 Sirius Group acquired the runoff loss reserve portfolio of Old Lyme (see Note 2). As part of the acquisition, Sirius Group entered into a five-year $2.1 million purchase note. The principal amount of the purchase note is subject to upward adjustments for favorable loss reserve development (up to 50% of $6.0 million) and downward adjustments for any adverse loss reserve development.

Sierra Note

In connection with its acquisition of the Sierra Insurance Group Companies (“Sierra Group”) on March 31, 2004, Sirius Group entered into a $62.0 million purchase note (the “Sierra Note”), $58.0 million of which may be adjusted over its six-year term to reflect favorable or adverse loss reserve development on the acquired reserve portfolio and runoff of remaining policies in force (mainly workers compensation business), as well as certain other balance sheet protections. Since inception the principal of the Sierra Note had been reduced by $29.0 million as a result of adverse development on the acquired reserves and runoff of unearned premium, which includes $5.2 million and $22.8 million of adverse development which occurred during 2008 and 2005 and $1.9 million and $9.1 million of favorable development in 2010 and 2007. Interest accrued on the unpaid balance of the Sierra Note at a rate of 4.0% per annum, compounded quarterly, and was payable at its maturity.

On October 31, 2008, White Mountains disposed of its remaining interest in the Sierra Group as part of the Berkshire Exchange transaction. White Mountains was still obligated to repay the Sierra Note, but Berkshire provided White Mountains an indemnity, whereby Berkshire reimbursed White Mountains all amounts due under the Sierra Note at its maturity, as adjusted for future reserve development, except for the portion of interest on the Sierra Note that accrued from its issue date through December 31, 2007, plus interest on this accrued amount through the date of repayment.

The Sierra Note matured on March 31, 2010. However, the final amount due was in dispute with respect to the amount of loss reserve development. On September 15, 2010, White Mountains paid Sierra the undisputed amounts owed of $42.8 million on the Sierra Note which consisted of $33.0 million for the principal repayment and $9.8 million for accrued interest. Berkshire reimbursed White Mountains $36.7 million, which consisted of the $33.0 million principal balance and $3.7 million for accrued interest.

During the fourth quarter of 2011, the dispute was settled through arbitration. White Mountains paid additional interest accrued on the Sierra Note and recognized $5.5 million of interest expense.

Atlantic Specialty Note

In connection with its acquisition of Atlantic Specialty Insurance Company on March 31, 2004, OneBeacon issued a $20.0 million ten-year note to the seller (the “Atlantic Specialty Note”). The note accrued interest at a rate of 5.2%, except that the outstanding principal amount in excess of $15.0 million accrued interest at a rate of 3.6%. In 2010, OneBeacon repaid the remaining $14.0 million outstanding principal on the note.

Debt Covenants

At December 31, 2012, White Mountains was in compliance with all of the covenants under the WTM Bank Facility, the 2012 OBH Senior Notes and the SIG Senior Notes.

Interest

Total interest expense incurred by White Mountains for its indebtedness was $44.8 million, $55.2 million and $57.3 million in 2012, 2011 and 2010. Total interest paid by White Mountains for its indebtedness was $44.6 million, $59.0 million, and $64.1 million in 2012, 2011 and 2010.