Debt

3 Months Ended

Mar. 31, 2019

Note 5 - Debt

Amended and Extended Credit Agreement and Term Loan Facility

On June 29, 2018, the Company borrowed $250.0 million under the delayed draw term loan facility to facilitate the funding of the acquisition of Infinity. The proceeds from the term loan facility, net of debt issuance costs, were $249.4 million. On December 28, 2018, the Company repaid $215.0 million of the outstanding term loan facility. There were no outstanding borrowings at March 31, 2019 and December 31, 2018 under the revolving credit agreement.

Infinity Debt

Infinity’s liabilities at the acquisition date included $275.0 million principal amount, 5.0% Senior Notes due September 19, 2022 (the “2022 Senior Notes”). The 2022 Senior Notes were recorded at fair value as of the acquisition date, $282.1 million, with the $7.1 million premium being amortized as a reduction to interest expense over the remaining term, resulting in an effective interest rate of 4.36%. On November 30, 2018, 2018 Kemper executed a guarantee to fully and unconditionally guarantee the payment and performance obligations of the 2022 Senior Notes.

Note 5 - Debt (continued)

Long-term Debt

The Company designates debt obligations as either short-term or long-term based on maturity date at issuance, or in the case of the 2022 Senior Notes, based on the date of assumption. Total amortized cost of Long-term Debt outstanding at March 31, 2019 and December 31, 2018 was:



(Dollars in Millions)	Mar 31, 2019		Dec 31, 2018
Term Loan due June 29, 2020	$	34.9	$	34.9
5.0% Senior Notes due September 19, 2022	281.0		281.5
4.35% Senior Notes due February 15, 2025	448.4		448.4
7.375% Subordinated Debentures due February 27, 2054	144.2		144.2
Total Long-term Debt Outstanding	$	908.5	$	909.0

Collateralized Investment Borrowings

Kemper’s subsidiaries, United Insurance Company of America (“United Insurance”) and Trinity Universal Insurance Company (“Trinity”), are members of the Federal Home Loan Bank (“FHLB”) of Chicago and Dallas, respectively. As a requirement of membership in the FHLB, United Insurance and Trinity maintain a certain level of investment in FHLB stock and additional amounts based on the level of outstanding borrowings. The Company’s investments in FHLB common stock are reported at cost and included in Equity Securities at Modified Cost. The carrying value of FHLB of Chicago common stock was $3.8 million and $0.8 million at March 31, 2019 and December 31, 2018, respectively. The carrying value of FHLB of Dallas common stock was $3.3 million at March 31, 2019 and December 31, 2018.

In March of 2018, United Insurance received advances of $10.0 million from the FHLB of Chicago. These advances, made in connection with the start-up of the Company’s collateralized investment borrowings program, were collateralized by U.S Government Agency securities held in a custodial account with the FHLB of Chicago with a fair value of $15.7 million at December 31, 2018. These advances were repaid in March of 2019.

In March of 2019, United Insurance received advances of $187.7 million from the FHLB of Chicago. These advances were made in connection with the Company’s collateralized investment borrowings program. The proceeds related to these advances were used to purchase fixed maturity securities to earn incremental net investment income. With respect to these advances, United Insurance held pledged municipal securities in a custodial account with the FHLB of Chicago with a fair value of $198.0 million as of March 31, 2019. The fair value of the collateral pledged must be maintained at certain specified levels above the borrowed amount, which can vary depending on the assets pledged. If the fair value of the collateral declines below these specified levels of the amount borrowed, United Insurance would be required to pledge additional collateral or repay outstanding borrowings.

Note 5 - Debt (continued)

The following summarizes the terms of the Company’s Collateralized Investment Borrowings at March 31, 2019:



(Dollars in Millions)	Principal Borrowings		Weighted-average Interest Rate
Due in One Year or Less	$	93.1	2.61	%
Due after One Year to Two Years	92.0		2.73	%
Due after Two Years to Three Years	2.6		2.71	%
	$	187.7

Interest Expense and Interest Paid

Interest Expense, including facility fees, accretion of discount, amortization of premium and amortization of issuance costs, was $11.5 million for the three months ended March 31, 2019. Interest paid, including facility fees, was $19.8 million for the three months ended March 31, 2019, respectively. Interest Expense, including facility fees, accretion of discount and amortization of issuance costs, was $8.0 million for the three months ended March 31, 2018. Interest paid, including facility fees, was $12.5 million for the three months ended March 31, 2018.