A.M. Best Co. has assigned a debt rating of “bbb” to the recently issued $500 million 5.20% fixed-to-floating rate junior subordinated notes due 2044 of Prudential Financial, Inc. (PFI) (Newark, NJ) (NYSE: PRU). The assigned outlook is stable. The debt is a drawdown off of an existing shelf registration filed in March 2012. 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 its existing junior subordinated notes. A.M. Best notes that the newly issued hybrids contain terms similar to the company’s previous junior subordinated issuances. Similarly, PFI may redeem the notes on or after March 15, 2024 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 primarily for general corporate purposes including the redemption of PFI’s 9% junior subordinated notes due in 2068. The rating recognizes PFI’s very strong liquidity profile, as well as the strong operating performance of its various business segments. The company has repeatedly demonstrated its access to the capital markets and in the past month (inclusive of this offering) has issued $1.2 billion of junior subordinated notes. However, A.M. Best believes that PFI, although consistent with its scale and business mix, continues to utilize significant amounts of total leverage on a consolidated basis. Nevertheless, when incorporating partial equity credit for the new notes, PFI’s financial leverage remains within A.M. Best’s guidelines for the company’s current ratings. Although interest coverage is currently below A.M. Best’s guidelines given the company’s reported GAAP results for year-end 2012, PFI currently maintains sufficient liquidity throughout the organization to meet its obligations. A.M. Best anticipates higher earnings and coverage ratios going forward. In addition, the recent issuances have improved the company’s debt maturity profile and will eventually lower overall fixed charges.
The methodology used in determining these ratings is Best’s Credit Rating Methodology, which provides a comprehensive explanation of A.M. Best’s rating process and contains the different rating criteria employed in the rating process. Best’s Credit Rating Methodology can be found at www.ambest.com/ratings/methodology.A.M. Best Company is the world's oldest and most authoritative insurance rating and information source. For more information, visit www.ambest.com. Copyright © 2013 by A.M. Best Company, Inc. ALL RIGHTS RESERVED.