Prudential 2011 Annual Report Download - page 133

Our total borrowings consist of capital debt, investment-related debt, securities business-related debt and debt related to specified
other businesses. Capital debt consists of borrowings that are used or will be used to meet the capital requirements of Prudential Financial,
as well as borrowings invested in equity or debt securities of direct or indirect subsidiaries of Prudential Financial and subsidiary
borrowings utilized for capital requirements. Investment-related borrowings consist of debt issued to finance specific investment assets or
portfolios of investment assets, including institutional spread lending investment portfolios, real estate and real estate-related investments
held in consolidated joint ventures, assets supporting reserve requirements under Regulation XXX and Guideline AXXX as described
below, as well as institutional and insurance company portfolio cash flow timing differences. Securities business-related debt consists of
debt issued to finance primarily the liquidity of our broker-dealers and our capital markets and other securities business-related operations.
Debt related to specified other businesses consists of borrowings associated with our individual annuities business, real estate franchises,
and relocation services. Those borrowings where the holder is entitled to collect only against the assets pledged to the debt as collateral, or
where the borrower has only very limited rights to collect against other assets, have been classified as limited and non-recourse debt.
The following table summarizes our borrowings, categorized by use of proceeds, as of the dates indicated.
December 31,
2011 2010
(in millions)
General obligations:
Capital debt(1) ........................................................................................... $11,224 $ 8,763
Investment-related ......................................................................................... 8,897 9,569
Securities business-related .................................................................................. 1,518 2,230
Specified other businesses .................................................................................. 3,569 3,323
Total general obligations ................................................................................ 25,208 23,885
Limited and non-recourse debt(2) ................................................................................. 1,750 1,750
Total borrowings ..................................................................................... $26,958 $25,635
Short-term debt ............................................................................................... $ 2,336 $ 1,982
Long-term debt ............................................................................................... 24,622 23,653
Total borrowings ..................................................................................... $26,958 $25,635
Borrowings of Financial Services Businesses ....................................................................... $25,208 $23,885
Borrowings of Closed Block Business ............................................................................. 1,750 1,750
Total borrowings ..................................................................................... $26,958 $25,635
(1) Includes $1,519 million of total outstanding junior subordinated debt. See “—Prudential Financial” for additional information on our capital debt to
total capital ratio, including the equity credit attributed to our outstanding junior subordinated debt.
(2) As of both December 31, 2011 and 2010, the limited and non-recourse debt outstanding was attributable to the Closed Block Business.
The following table presents, as of December 31, 2011, the contractual maturities of the Company’s long-term debt.
Long-term Debt
(in millions)
Calendar Year:
2013 ......................................................................................................... $ 1,825
2014 ......................................................................................................... 2,064
2015 ......................................................................................................... 3,159
2016 ......................................................................................................... 1,502
2017 and thereafter .............................................................................................. 16,072
Total ..................................................................................................... $24,622
We may, from time to time, seek to redeem or repurchase our outstanding debt securities through individually negotiated transactions
or otherwise. Any such repurchases will depend on prevailing market conditions, our liquidity position, contractual restrictions and other
factors.
The states of domicile of our domestic life insurance subsidiaries have in place a regulation entitled “Valuation of Life Insurance
Policies,” commonly known as “Regulation XXX,” and a supporting Guideline entitled “The Application of the Valuation of Life
Insurance Policies,” commonly known as “Guideline AXXX.” The Regulation and supporting Guideline require insurers to establish
statutory reserves for term and universal life insurance policies with long-term premium guarantees that are consistent with the statutory
reserves required for other individual life insurance policies with similar guarantees. Many market participants believe that this level of
reserves is non-economic, and we have implemented reinsurance and capital management actions to mitigate the impact of Regulation
XXX and Guideline AXXX on our term and universal life insurance business, including actions that are described in more detail below.
During 2011, a subsidiary of Prudential Insurance entered into agreements providing for the issuance and sale of up to $1 billion of
ten-year fixed-rate surplus notes in order to finance reserves required under Regulation XXX. At December 31, 2011, $500 million of
surplus notes were outstanding under this facility. Under the agreements, the subsidiary issuer received debt securities, with a principal
amount equal to the surplus notes issued, which are redeemable under certain circumstances, including upon the occurrence of specified
stress events affecting the subsidiary issuer. Because valid rights of set-off exist, interest and principal payments on the surplus notes and
on the debt securities are settled on a net basis, and the surplus notes are reflected in the Company’s total consolidated borrowings on a net
Prudential Financial, Inc. 2011 Annual Report 131