Prudential Financial, Inc. -- Moody's rates Prudential's junior subordinated notes at Baa1(hyb); outlook stable

Moody's

Tue, Aug 18, 2020, 2:45 PM31 min read

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<!DOCTYPE html> <html lang="" xml:lang=""> <head> <title>/nwsys/www/images/PR_1000003249</title> <meta http-equiv="Content-Type" content="text/html; charset=UTF-8"/> <meta name="generator" content="pdftohtml 0.36"/> <meta name="date" content="2020-08-18T14:38:40+00:00"/> <style type="text/css">  </style> </head> <body bgcolor="#A0A0A0" vlink="blue" link="blue">  <style type="text/css">  </style> <div id="page1-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003249001.png" alt="background image"/> Rating Action:  Moody's rates Prudential's junior subordinated notes at Baa1(hyb); outlook stable 18 August 2020 New York, August 18, 2020 – Moody’s Investors Service (“Moody’s”) has assigned a Baa1(hyb) junior subordinated debt rating to the anticipated $1.3 billion of junior subordinated notes to be issued by Prudential Financial, Inc. (“PFI”; NYSE: PRU, senior debt at A3, stable outlook). The notes will be drawn under a 2018 shelf registration in two tranches, maturing in 2050 and 2060, respectively. The net proceeds of the issuance will be used to redeem existing notes. The rating outlook for PFI is stable. RATINGS RATIONALE PFI’s debt rating is based on the company’s diversified operations and leading market positions. In the US, Prudential's insurance operations have gained defensible, growing, top market positions in a number of life insurance, annuity, and retirement products, including leadership in the market for pension risk transfer (PRT) transactions, particularly for jumbo transactions. The company also has a leading global asset management operation and an important Japanese life and retirement insurance business, both of which add revenue and earnings diversity. These strengths are somewhat tempered by Prudential's size and complexity, and the risk and volatility of some of its products, including variable annuities (VAs), universal life insurance in leveraged captive structures, and legacy long-term care (LTC). These liabilities are, collectively, interest-rate and equity market sensitive, and exposed to reserve charges and in some cases, rising death claims in the current coronavirus-affected markets around the globe (albeit mitigated to date by certain longevity portfolios). Moody's notes that the coronavirus-related economic slowdown and extensive credit shock across many sectors regions and markets, low interest rates, and the restricted movement of the US population will stress most aspects of life insurers' financials, including those of PFI. This includes sales, investment income, investments, reserves and capital adequacy. Prudential’s adjusted financial leverage ratios are not expected to be impacted by this issuance. At above 30%, these ratios are somewhat elevated, but we expect the company return them to the 25%-30% range in the next 18 months. Prudential will also benefit in terms of interest coverage from the lower coupons on the issuance compared to those being redeemed, given lower current interest rates. FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS The following factors could lead to an upgrade of Prudential's ratings: upgrade of Prudential Insurance Company of America's (PICA) ratings, or improvement in the stand-alone credit profile of the Japanese operation; an increase in cash flow diversity available to the holding company, with ordinary dividends from the company's non-US life insurance subsidiaries accounting for a significantly higher percentage of holding company cash flows; stronger annual earnings contribution from PGIM; adjusted financial leverage at PFI of below 20% (excluding AOCI), with consolidated GAAP earnings coverage of at least 10x and cash coverage of at least 6x (including International </div>  <style type="text/css">  </style> <div id="page2-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003249002.png" alt="background image"/> and PGIM) of on a consistent basis, and with continuing growth in ordinary statutory dividend capacity at PICA. The following factors could lead to a downgrade of Prudential's ratings: a downgrade of PICA's ratings; deterioration in the credit profile of the Japanese operations and PGIM; adjusted financial leverage (excluding AOCI) at PFI of over 30%, with consolidated GAAP earnings coverage consistently less than 7x or cash coverage of less 4x (including International and PGIM, with deteriorating ordinary statutory dividend capacity at PICA). The following rating was assigned: Prudential Financial, Inc.: junior subordinated notes at Baa1 (hyb). The outlook on Prudential Financial, Inc. and its affiliates is stable. Prudential Financial, Inc. is an insurance and investment management organization headquartered in Newark, New Jersey. As of June 30, 2020, the company had total consolidated GAAP assets of approximately $915 billion and total shareholders' equity of close to $67 billion. The principal methodology used in this rating was Life Insurers Methodology published in November 2019 and available at  https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_1187348  . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology. REGULATORY DISCLOSURES For further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at:  https://www.moodys.com/ researchdocumentcontentpage.aspx?docid=PBC_79004 . For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com. For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity. The rating has been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure. </div>  <style type="text/css">  </style> <div id="page3-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003249003.png" alt="background image"/> This rating is solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com. Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review. Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at  https://www.moodys.com/researchdocumentcontentpage.aspx? docid=PBC_1133569 . The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com. Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating. Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Laura Bazer VP-Sr Credit Officer Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> Scott Robinson, CFA Associate Managing Director Financial Institutions Group JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> Releasing Office: Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. JOURNALISTS: 1 <PhoneNo>212 553 0376</PhoneNo> Client Service: 1 <PhoneNo>212 553 1653</PhoneNo> © 2020 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved. </div>  <style type="text/css">  </style> <div id="page4-div" style="position:relative;width:918px;height:1188px;"> <img width="918" height="1188" src="http://mco.acquiremedia.com/images/PR_1000003249004.png" alt="background image"/> CREDIT RATINGS ISSUED BY MOODY'S INVESTORS SERVICE, INC. AND/OR ITS CREDIT RATINGS AFFILIATES ARE MOODY’S CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S INVESTORS SERVICE DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S INVESTORS SERVICE CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. 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Prudential Financial, Inc. -- Moody's rates Prudential's junior subordinated notes at Baa1(hyb); outlook stable

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