Prudential Financial Inc.’s ( PRU) recently issued $500 million 5.20% fixed-to-floating rate junior subordinated notes have been conferred a debt rating of “bbb” by A.M. Best Co.
The rating agency has kept unchanged other ratings which include – financial strength, issuer credit and existing debt ratings of Prudential Financial and its subsidiaries.
All the ratings carry a stable outlook. A stable outlook reflects that Prudential is experiencing stable financial and market trends, and that therefore a rating change in the near term is unlikely.
Though the notes will mature in 2044, Prudential has the option to pay back the notes on or after Mar 15, 2024. It can also make payment on the notes at any time within 90 days after the occurrence of a ’tax event,’ ’a rating agency event‘ or a ’regulatory capital event.’
The funds gathered from the notes issue will be used primarily for general corporate purposes which includes redemption of the company’s 9% junior subordinated notes due in 2068.
Prudential’s operating results, debt servicing capability, capital strength as well as reliance on both short and long-term external debt were all taken into account by the rating agency for the rating action.
The rating agency takes into account Prudential’s repeated issuance of debt in the last month. The company has in total issued $1.2 billion of junior subordinated notes.
On the flip side, Prudential’s high financial leverage ratio of 35% continues to be a cause of concern for the rating agency. It was also concerned with the company’s Total Financing and Commitments ratio of 1.4x, which was above its peer group average due to high use of debt within the insurer’s capital structure.
Nevertheless, Prudential’s robust statutory capitalization gives the rating agency adequate confidence in the company. The rating agency expects higher earnings and coverage ratios going forward.
Prudential’s stock retains a Zacks Rank #3 (Hold).
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