OLDWICK, N.J.--(BUSINESS WIRE)--A.M. Best Co. has assigned a debt rating of “bbb” to the recently issued $600 million 8.875% fixed-to-floating rate junior subordinated notes of Prudential Financial, Inc. (PFI) (Newark, NJ) [NYSE: PRU]. The outlook for the rating is positive. The ratings of PFI’s domestic life/health insurance companies and existing debt securities remain unchanged.

The rating assigned to the notes reflects their deeply subordinated status within the organization’s capital structure. Specifically, these securities will rank junior to PFI’s existing and future senior indebtedness. Given certain equity like features, including a 60-year maturity with a 30-year replacement capital covenant, optional deferral of interest payments and their deeply subordinated status, A.M. Best has afforded them 75% equity credit in PFI’s financial leverage calculation. The net proceeds of the hybrid offering are expected to be used primarily to fund PFI’s previously authorized share repurchase program and for general corporate purposes.

PFI’s ratings and associated outlook reflect the organization’s favorable trends in operating performance, enhanced earnings diversification and improved business profile aided by strategic acquisitions over the last few years. The ratings also reflect the considerable diversity in PFI’s business mix within its insurance, investment and international divisions along with anticipated improved access to international capital, considerable financial flexibility, sound liquidity and a strong global market presence.

These strengths are partially mitigated by ongoing assertive capital management, including above average use of operating leverage; higher investment risk relative to peers; and the need to improve its competitive position in its target markets within the retirement segment. Furthermore, A.M. Best expects statutory capital levels within PFI’s U.S. subsidiaries to stabilize as they have declined materially in recent years. A.M. Best notes that PFI’s increased usage of operating leverage in recent years, which reflects the company’s distinctive business mix resulting in higher levels of working capital to support normal operating needs, has resulted in reduced fixed charge coverage (including shareholder dividends). Although PFI’s overall financial leverage has increased, it remains within A.M. Best’s expectations for the current ratings.

For Best’s Debt Ratings, all other Best’s Ratings, an overview of the rating process and rating methodologies, please visit www.ambest.com/ratings.

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Source: A.M. Best Company

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