AM Best Assigns Issue Credit Rating to Prudential Financial, Inc.’s New Junior Subordinated Notes

Rhea-AI Summary

AM Best assigns a 'bbb' Long-Term Issue Credit Rating to Prudential Financial, Inc.'s $1 billion fixed-rate notes. The outlook is stable. Proceeds will be used for general corporate purposes, including debt redemption. Prudential's liquidity is strong, with $4.1 billion in liquid assets. Full-year 2023 pre-tax adjusted operating income was $5.5 billion.

Insights

Financial Analyst

Prudential Financial, Inc.'s issuance of $1 billion in junior subordinated notes at a 6.5% rate indicates a strategic move to manage its debt profile. The decision to potentially repurchase the existing $1.0 billion, 5.375% notes due in 2045, callable in 2025, suggests a refinancing strategy aimed at cost management and capital structure optimization. The stable outlook reflects confidence in Prudential's ability to manage its debt obligations without significantly impacting its financial stability.

The slight elevation in debt leverage in the medium term is a key factor for investors to monitor. A higher leverage ratio could signal increased risk, yet the anticipation of a decrease to the mid-to-high 20% range may alleviate long-term concerns. The interest coverage ratio remaining favorable is crucial, as it indicates Prudential's capability to meet interest expenses, a vital sign of financial health for creditors and investors alike.

Market Research Analyst

Prudential's liquidity position, with $4.1 billion in highly liquid assets, suggests robustness and resilience, essential qualities for enduring market volatility. The company's pre-tax adjusted operating income of $5.5 billion, along with net gains of $2.5 billion, underpins its financial performance, showcasing its operational efficiency and profitability.

The contribution of Prudential's U.S. and international business segments, along with its global asset management business, PGIM, which added approximately $700 million in fee-based pre-tax earnings, highlights the diversified revenue streams and the strength of Prudential's business model. This diversification can be seen as a buffer against sector-specific risks and is a positive signal for the company's long-term growth prospects.

Credit Analyst

The assigned Long-Term Issue Credit Rating of 'bbb' (Good) by AM Best to Prudential's junior subordinated notes is indicative of a good credit quality with a stable outlook. This suggests a moderate level of credit risk and implies investor confidence in the company's financial obligations. However, investors should consider the inherent subordination of these notes, which rank below other forms of debt in terms of claim priority and may result in higher risk in the event of financial distress.

Understanding the implications of 'fixed to fixed reset rate' is essential, as it means the interest rate is fixed initially but will reset at predetermined intervals, potentially affecting the debt's cost and attractiveness depending on interest rate environments. This characteristic requires careful consideration by investors regarding future interest rate scenarios and their impact on the notes' performance.

OLDWICK, N.J.--(BUSINESS WIRE)-- AM Best has assigned a Long-Term Issue Credit Rating of “bbb” (Good) to the $1 billion, 6.5% fixed to fixed reset rate junior subordinated notes, due March 15, 2054, of Prudential Financial, Inc. (Prudential) (Newark, NJ) [NYSE: PRU]. The outlook assigned to this Credit Rating (rating) is stable. All other ratings of Prudential and its subsidiaries remain unchanged.

The proceeds from this debt issuance are expected to be used for general corporate purposes, which may include repurchasing all of Prudential’s $1.0 billion, 5.375% fixed to floating rate junior subordinated notes due in 2045 and callable in 2025. The impact on Prudential’s debt leverage is expected to elevate slightly higher over the medium term as a higher leverage ratio will be realized prior to the note redemption before decreasing to the mid-to-high 20% range, and the interest coverage with this debt issue is expected to remain favorable. Prudential’s liquidity position is strong, with the parent company holding highly liquid assets of $4.1 billion at year-end 2023. The company’s full-year 2023 pre-tax adjusted operating income was $5.5 billion; however, on a net basis, the company reported gains of $2.5 billion. In its most recent disclosure, a primary driver of full-year 2023 results, is derived by both its U.S. business and international business segments, as well as Prudential’s global asset management business (PGIM,), which added approximately $700 million of fee based pre-tax earnings.

This press release relates to Credit Ratings that have been published on AM Best’s website. For all rating information relating to the release and pertinent disclosures, including details of the office responsible for issuing each of the individual ratings referenced in this release, please see AM Best’s Recent Rating Activity web page. For additional information regarding the use and limitations of Credit Rating opinions, please view Guide to Best's Credit Ratings. For information on the proper use of Best’s Credit Ratings, Best’s Performance Assessments, Best’s Preliminary Credit Assessments and AM Best press releases, please view Guide to Proper Use of Best’s Ratings & Assessments.

AM Best is a global credit rating agency, news publisher and data analytics provider specializing in the insurance industry. Headquartered in the United States, the company does business in over 100 countries with regional offices in London, Amsterdam, Dubai, Hong Kong, Singapore and Mexico City. For more information, visit www.ambest.com.

Copyright © 2024 by A.M. Best Rating Services, Inc. and/or its affiliates. ALL RIGHTS RESERVED.

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Wayne Kaminski

Associate Director

+1 908 882 1916

wayne.kaminski@ambest.com



Michael Porcelli

Senior Director

+1 908 882 2250

michael.porcelli@ambest.com



Christopher Sharkey

Associate Director, Public Relations

+1 908 882 2310

christopher.sharkey@ambest.com



Al Slavin

Senior Public Relations Specialist

+1 908 882 2318

al.slavin@ambest.com

Source: AM Best

FAQ

What is the Long-Term Issue Credit Rating assigned to Prudential Financial, Inc.'s notes?

AM Best assigned a 'bbb' Long-Term Issue Credit Rating to Prudential Financial, Inc.'s $1 billion fixed-rate notes.

What is the outlook for Prudential Financial, Inc.'s Credit Rating?

The outlook assigned to Prudential Financial, Inc.'s Credit Rating is stable.

How much is Prudential Financial, Inc. issuing in fixed-rate notes?

Prudential Financial, Inc. is issuing $1 billion in fixed-rate notes.

What are the proceeds from the debt issuance expected to be used for?

The proceeds from the debt issuance are expected to be used for general corporate purposes, including repurchasing existing notes.

What is Prudential Financial, Inc.'s liquidity position?

Prudential Financial, Inc.'s liquidity position is strong, with $4.1 billion in liquid assets.

What was Prudential Financial, Inc.'s full-year 2023 pre-tax adjusted operating income?

Prudential Financial, Inc.'s full-year 2023 pre-tax adjusted operating income was $5.5 billion.