Prudential 2002 Annual Report Download - page 120
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Notes to Consolidated Financial Statements
12. SHORT-TERM AND LONG-TERM DEBT (continued)
Long-term Debt
Long-term debt at December 31, is as follows:
Description
Maturity
Dates Rate 2002 2001
(in millions)
Prudential Holdings, LLC notes (the “IHC debt”)
Series A ................................................. 2017(a) (b) $ 333 $ 333
Series B ................................................. 2023(a) 7.245% 777 777
Series C ................................................. 2023(a) 8.695% 640 640
Fixed rate notes
U.S. Dollar ............................................... 2003-2035 5.97%-15.00% 1,131 1,147
JapaneseYen ............................................. 2010 (c) 384 348
Floating rate notes (“FRNs”)
U.S. Dollar ............................................... 2003-2035 (d) 785 975
Canadian Dollar ........................................... 2003 (e) — 80
JapaneseYen ............................................. 2005-2010 (f) 17 15
Surplusnotes ................................................. 2003-2025 (g) 690 989
Total long-term debt ............................................ $4,757 $5,304
(a) Annual scheduled repayments of principal for the Series A and Series C notes begin in 2013. Annual scheduled repayments of principal
for the Series B notes begin in 2018.
(b) The interest rate on the Series A notes is a floating rate equal to LIBOR plus 0.875% per year. The interest rate ranged from 2.29% to
2.87% in 2002 and was 2.74% in 2001.
(c) The interest rate on the Japanese Yen denominated fixed rate note is 2.2% through 2008 at which time it becomes a floating rate note.
(d) The interest rates on the U.S. dollar denominated FRNs are generally based on rates such as LIBOR, Constant Maturity Treasury and the
Federal Funds Rate. Interest rates on the U.S. dollar denominated FRNs ranged from 1.72% to 4.58% in 2002 and 2.07% to 9.42% in
2001.
(e) The interest rate on the Canadian Dollar denominated FRN is based on the Canadian Bankers Acceptances Rate (CADBA) less 0.30%.
This note has a contractual floor of 6.00% with a contractual cap of 9.125%. The interest rate ranged from 6.00% to 6.84% in 2001.
(f) The interest rates on the Japanese Yen denominated FRNs are based on the Yen LIBOR plus 1.20%. The interest rates ranged from 1.27%
to 1.33% in 2002 and was 1.32% in 2001.
(g) The interest rate on the Surplus notes ranged from 7.65% to 8.30% in 2002 and 6.875% to 8.30% in 2001.
Several long-term debt agreements have restrictive covenants related to the total amount of debt, net tangible
assets and other matters. At December 31, 2002 and 2001, the Company was in compliance with all debt
covenants.
Payment of interest and principal on the surplus notes issued after 1993, of which $690 million was
outstanding at December 31, 2002 and 2001, may be made only with the prior approval of the Commissioner of
Banking and Insurance of the State of New Jersey (“the Commissioner”). The Commissioner could prohibit the
payment of the interest and principal on the surplus notes if certain statutory capital requirements are not met. At
December 31, 2002, the Company has met these statutory capital requirements.
In order to modify exposure to interest rate and currency exchange rate movements, the Company utilizes
derivative instruments, primarily interest rate swaps, in conjunction with some of its debt issues. These
instruments qualify for hedge accounting treatment. The impact of these instruments, which is not reflected in the
rates presented in the table above, was a decrease of $15 million in interest expense for the year ended December
31, 2002. Floating rates are determined by contractual formulas and may be subject to certain minimum or
maximum rates. See Note 20 for additional information on the Company’s use of derivative instruments.
Prudential Financial 2002 Annual Report 119