A.M. Best Co. has assigned a debt rating of “bbb” to the recently issued $500 million 5.75% fixed-to-floating rate junior subordinated notes maturing December 15, 2052 of Prudential Financial, Inc. (PFI) (Newark, NJ) [NYSE: PRU]. The assigned outlook is stable. The financial strength, issuer credit and existing debt ratings of PFI and its domestic life/health insurance companies are unchanged.
The assigned rating reflects the notes’ deeply subordinated status within PFI’s capital structure. Specifically, these securities will rank junior to PFI’s existing and future senior indebtedness and pari passu with PFI’s existing junior subordinated notes.
A.M. Best notes that the newly issued junior subordinated notes somewhat mirror the key terms of the company’s most recent issuance, albeit with a longer maturity and fixed interest rate. (See A.M. Best’s press release dated November 15, 2012 for further information.) Similarly, these notes differ from the other existing junior subordinated debt in that PFI may redeem the new notes on or after December 4, 2017 or at any time within 90 days after the occurrence of a “tax event,” a rating agency event” or a “regulatory capital event.” The net proceeds of the hybrid offering are expected to be used for general corporate purposes including the redemption of PFI’s outstanding retail medium-term notes.
The rating recognizes PFI’s very strong liquidity at the holding company, as well as the strong operating performance of its various business segments. PFI has repeatedly demonstrated its access to the capital markets, particularly over the past two years. However, A.M. Best notes that PFI, although consistent with its scale and business mix, continues to utilize significant amounts of total leverage. A.M. Best believes that this most recent issuance somewhat reduces PFI’s overall financial flexibility. Nevertheless, when incorporating partial equity credit for the new notes, financial leverage remains within A.M. Best’s guidelines for the company’s current rating level. Based on A.M. Best’s “Insurance Holding Company and Debt Ratings” criteria, interest coverage is below guidelines for the current rating but is more than mitigated by the strong reported adjusted operating income and excess cash at the holding company.