Prudential 2011 Annual Report Download - page 123

However, we do not anticipate receiving dividends from the merged entity for several years as it may return capital to Prudential Financial
through other means, such as the repayment of subordinated debt or preferred stock obligations held by Prudential Financial or other
affiliates. In August 2011, Gibraltar Life repaid ¥24 billion, or $313 million, of subordinated debt held by an intermediate holding
company, of which $119 million was used to repay a loan from Prudential Insurance and the remainder was paid to Prudential Financial.
The ability of our asset management subsidiaries and the majority of our other operating subsidiaries to pay dividends is largely
unrestricted from a regulatory standpoint but can be affected by market conditions and other factors.
See “Liquidity and Capital Resources of Our Subsidiaries” below for additional details on the liquidity of our domestic insurance
subsidiaries, international insurance subsidiaries and asset management subsidiaries.
Alternative Sources of Liquidity
Prudential Financial maintains an intercompany liquidity account that is designed to optimize the use of cash by facilitating the
lending and borrowing of funds between Prudential Financial and its affiliates on a daily basis. Depending on the overall availability of
cash, Prudential Financial invests excess cash on a short-term basis or borrows funds in the capital markets. Additional longer term
liquidity is available through inter-affiliate borrowing arrangements. Prudential Financial and certain of its subsidiaries also have access to
bank facilities, as discussed under “—Credit Facilities,” as well as the alternative sources of liquidity described below.
Commercial Paper Programs
Prudential Financial and Prudential Funding, LLC, or Prudential Funding, a wholly-owned subsidiary of Prudential Insurance, have
commercial paper programs with an authorized issuance capacity of $3.0 billion and $7.0 billion, respectively. Prudential Financial
commercial paper borrowings generally have been used to fund the working capital needs of our subsidiaries. Prudential Funding
commercial paper borrowings have generally served as an additional source of financing to meet the working capital needs of Prudential
Insurance and its subsidiaries. Prudential Funding also lends to other subsidiaries of Prudential Financial up to limits agreed with the
NJDOBI.
While we continue to consider commercial paper one of our alternative sources of liquidity due to the low cost and efficient financing
it provides, over the past several years we have significantly reduced our reliance on commercial paper to fund our operations, and have
developed plans that would enable us to further reduce, or if necessary eliminate, our commercial paper borrowings by accessing other
sources of liquidity.
The following table sets forth Prudential Financial’s and Prudential Funding’s outstanding commercial paper borrowings as of the
dates indicated.
December 31,
2011 2010
(in millions)
Prudential Financial ............................................................................................. $ 296 $ 283
Prudential Funding .............................................................................................. 870 874
Total outstanding commercial paper borrowings(1)(2) .............................................................. $1,166 $1,157
Portion of above borrowings that were due overnight ................................................................... $ 545 $ 309
Weighted average maturity of outstanding commercial paper, in days ...................................................... 21 34
(1) The daily average commercial paper outstanding under these programs during 2011 and 2010 was $1,368 million and $1,208 million, respectively.
(2) The weighted average interest rate on borrowings for the years ended December 31, 2011 and 2010 was 0.37 % and 0.42%, respectively, for Prudential
Financial and 0.20 % and 0.31%, respectively, for Prudential Funding.
Prudential Funding maintains a support agreement with Prudential Insurance whereby Prudential Insurance has agreed to maintain
Prudential Funding’s positive tangible net worth at all times. Prudential Financial has also issued a subordinated guarantee covering
Prudential Funding’s commercial paper program.
As of December 31, 2011, Prudential Financial and Prudential Funding had unsecured committed lines of credit totaling $3.75 billion.
These facilities can be used as backup liquidity for our commercial paper programs or for other general corporate purposes. There were no
outstanding borrowings under these facilities as of December 31, 2011 or as of February 24, 2012. For a further description of these lines of
credit, see “—Credit Facilities.”
Asset-based Financing
We conduct asset-based or secured financing within our insurance and other subsidiaries, including transactions such as securities
lending, repurchase agreements and mortgage dollar rolls, in order to earn spread income, to borrow funds, or to facilitate trading activity.
These programs are driven by portfolio holdings of securities that are lendable based on counterparty demand for these securities in the
marketplace. The collateral received in connection with these programs is primarily used to purchase securities in the short-term spread
portfolios of our domestic insurance entities. Investments held in the short-term spread portfolios include cash and cash equivalents, short-
term investments and fixed maturities, including mortgage- and asset-backed securities, with a weighted average life at time of purchase of
two years or less. A portion of the asset-backed securities held in our short-term spread portfolios, including our enhanced short-term
portfolio, are collateralized by sub-prime mortgages. Floating rate assets comprise the majority of our short-term spread portfolio. See
“—Realized Investment Gains and Losses and General Account Investments—General Account Investments—Fixed Maturity Securities”
for a further discussion of our asset-backed securities collateralized by sub-prime holdings, including details regarding those securities held
Prudential Financial, Inc. 2011 Annual Report 121