Prudential Financial, Inc.
) issued long-term junior subordinated notes worth $500 million.
The issue was doubled from the originally planned $250 million.
The net proceeds are expected to be utilized for improving the
company's business operations and redeeming retail medium-term
notes, which carry higher interest rates.
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The Notes bear a coupon rate of 5.75%. Interest on the notes will
be paid on a quarterly basis. The first interest payment is
scheduled on March 15, 2013.
The notes are dated to mature on December 15, 2052.
), Bank of America Merrill Lynch, the corporate and investment
banking division of
Bank of America Corp
Wells Fargo & Co
) as the joint book-running managers for the sale. The notes are
rated "Baa3" by Moody's Investor Service of
), "bbb" by A.M. Best and "BBB-" by both Standards & Poor's
(S&P) and Fitch Ratings. The outlook remains stable for all.
Earlier last week, Prudential issued long-term callable notes
worth $1.5 billion to be used for general corporate purposes.
The ratings from all the agencies validate Prudential's solid
earnings growth and escalated operational scale on the heels of
exceptional operating performance from its diversified business
basket and brand appreciation. Moreover, a strong international
presence provides the company with better organic growth
opportunities and helps garner market share, thereby
strengthening its competitive position.
Prudential's financial leverage ratio is expected to be about 35%
for 2012, up from 32% at 2011-end, but slightly down from 36% at
the end of September 2012. However, about 200 basis points
increase in leverage ratio in 2012 is attributable to prepayment
of debt and a new accounting standard for deferred acquisition
costs, which reduced shareholder equity.
Nevertheless, total leverage that includes all operating leverage
stood stable at 41% at the end of September 2012 against 42% at
2011-end. Moreover, despite the lingering concerns regarding low
interest rate and economic volatility, Prudential has been
successfully maintaining acceptable risk-based adjusted capital
Overall, Prudential can see higher ratings if it is able to
reduce its financial leverage ratio in the mid-20% range and
total leverage below 40%; GAAP interest coverage in the 8x-10x
range; NAIC RBC ratio remaining near current levels; and
Japan solvency margin ratio above 700%.
Reverse rating action can follow if financial leverage ratio
zooms past 35%; outstanding commercial paper constitutes above
10% of total debt on a sustained basis; a total financing and
commitments ratio goes above 1.5x; and GAAP interest coverage
ratio comes below 5x.
Prudential's stock retains a Zacks #3 Rank, which translates into
a short-term Hold rating.