Moody's Rates Prudential's Notes - Analyst Blog

The rating agency Moody's Investors Service, an arm of Moody's Corp. (MCO), has conferred a “Baa2” rating to senior unsecured notes worth $1 billion issued recently by Prudential Financial Inc. (PRU). The rating holds an investment grade status and carries a “stable” outlook. 

These notes were issued in two parts – $500 million of 10-year at 4.5% that would yield 167 basis points more than similar maturity U.S. Treasuries, and $500 million of 6.2%, 30-year bonds that would pay a spread of 185 basis points.

The notes issue along with the offering of $1 billion of equity stock will be used to finance a portion of the purchase of American International Group Inc.'s (AIG) two Japanese life units – AIG Star Life Insurance Co. and AIG Edison Life Insurance Co.

The deal, which was finalized in September, would cost Prudential around $4.8 billion, including $600 million of the acquired companies' debt. Apart from $2 billion of funds raised, Prudential will use $2.2 billion of its cash to close the deal.

Japan is the largest business operation of Prudential outside the U.S., contributing approximately 40% to its revenues. Prudential has been operating in the country for over a couple of decades and has made three acquisitions – Orico Life Insurance and Kyoei Life Insurance Co. Ltd. in 2001 and Yamato Life Insurance Co. in 2009.

With a high rate of both life expectancy and savings, Japan is an attractive region for retirement products. The purchase of AIG's Japanese units will enhance Prudential's already strong footprint in the Japanese market, providing it a significant competitive advantage in the Asian region. Moreover, with excess capital of $2.5 billion on hand, the company is uniquely poised for organic and inorganic business growth opportunities.

Prudential's most recent quarter reported an operating income of $2.12 per share, significantly ahead of the Zacks Consensus Estimate of $1.43. Earnings also compared favorably with $1.78 in the year-ago quarter. Results for the quarter benefited from a higher reduction in policy acquisition costs and a shrinkage in minimum guaranteed benefit reserves coupled with a strong performance.

Prudential has been in the insurance and financial services business since 1848. Today they operate throughout the UK, the US and Asia, offering international health insurance and retirement planning services, supported by 27,000 employees worldwide.

 
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