Early this week,
Prudential Financial Inc.
) vended long-term callable notes worth $1.5 billion. 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.
Accordingly, these long-term fixed-to-floating rate junior
subordinated notes are issued at $99.994, while these bear a
coupon rate and yield of 5.625%. Particularly, these notes carry
a fixed rate until June 15, 2023, after which these may bear a
floating interest rate of 392 basis points (bps) over the 3-month
LIBOR rate. The notes are callable 50 bps.
The remarketed notes are dated to mature on June 15, 2043.
Meanwhile, interest on the notes will be paid semi-annually. The
first interest payment is scheduled on June 15, 2013.
Moreover, Prudential has structured these notes in a hybrid
format, whereby the company may be able to redeem the new notes
anytime after June 15, 2023 or within 90 days once the tax,
rating agency and regulatory capital events have occurred.
JP Morgan Chase & Co.
Credit Suisse AG
Barclays Capital Plc
Wells Fargo & Co.
Deutsche Bank AG
) as the joint book-running managers for the sale. Both the set
of above-mentioned notes are rated "Baa3" by Moody's Investor
), "bbb" by A.M. Best and "BBB-" by both Fitch Ratings and
Standards & Poor's (S&P). The outlook remains stable for
The ratings from all the agencies validate Prudential's solid
earnings growth and escalated its 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 2% of the hike in
leverage ratio in 2012 is attributable to prepayment of debt and
a new accounting standard for deferred acquisition costs, which
reduced shareholders' 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 the low interest rate and economic volatility,
Prudential has been successfully maintaining acceptable
risk-based adjusted capital (RBC) ratios.
Overall, Prudential could be the apple of the eyes' of the
ratings agencies if it is able to reduce its financial leverage
ratio in the mid-20% bandwidth and total leverage below 40%.
Prudential's stock retains a Zacks #3 Rank, which translates
into a short-term Hold rating.
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