A.M. Best Rates Prudential's Notes - Analyst Blog

The rating agency A.M. Best has conferred an “a-" on the recently issued $1 billion of senior notes by Prudential Financial Inc. (PRU). The notes have been sold in two tiers: $650 million of 5.375% 10-year notes and $350 million of 6.625% 30-year bonds. The proceeds from the issue will be used for general corporate purposes, which may include contributions of capital to its insurance and other subsidiaries, the repayment of short-term borrowings or other debt, or potential strategic initiatives.

 

The rating agency takes into account the group’s diversified operations, which span across regions such as the United States, Asia, Europe and Latin America. Its wide product portfolio encompasses life insurance, annuities, mutual funds, pension- and retirement-related investments, administration and asset management, and securities brokerage services. The right mix of businesses with strong fundamentals and strong risk management capabilities have helped it garner a strong market position with greater business diversification, placing it in a competitive position.

 

The rating agency also acknowledges Prudential’s measures in bolstering its financial strength and flexibility through long-term debt and equity issue. It had raised approximately $4.4 billion in 2009, thereby strengthening its capitalization ratio and improving liquidity. The company has reduced debt by $16 billion over the past three years. Its leverage ratio rests below the industry average and reflects its inherent capital strength. Furthermore, interest coverage ratio is expected to improve gradually as operating conditions normalize.

 

The notes also carry an investment grade rating from other rating agencies such as Moody’s Corp. (MCO), S&P and Fitch, who have conferred “Baa2", “A" and “BBB" ratings, respectively.

 

Prudential has been raising debt from time to time. During January, Prudential raised $1.25 billion of debt through two separate notes. For the full year 2009, the company had raised approximately $4.4 billion through long-term debt and equity issues. Moreover, during December 2009, the company sold off its 23% stake in Wachovia Securities to Wells Fargo, resulting in cash proceeds of $4.5 billion, thus bolstering its financial strength and flexibility and enhancing its ability to pursue business opportunities through organic growth and acquisitions.

 

Last week, A.M. Best reaffirmed the financial strength ratings (FSR) and issuer credit ratings (ICR) of Prudential and its subsidiaries, and revised its outlook on the company to “stable" from “negative". Accordingly, the company’s ICR of “a-" and all the existing debt ratings had also been reiterated. Also, its life and health insurance subsidiaries witnessed reaffirmation of their FSR and ICR at “A+" and “aa-", respectively.

 

Financial strength and credit ratings, which are intended to measure a company’s ability to meet policyholder obligations, are important factors affecting public confidence in most of Prudential's products and, as a result, its competitiveness. Securing an investment grade debt rating with a stable outlook reflects optimism about the company’s future performance.