Prudential 2011 Annual Report Download - page 202

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
14. SHORT-TERM AND LONG-TERM DEBT
Short-term Debt
Short-term debt at December 31, is as follows:
2011 2010
(in millions)
Commercial paper .................................................................................. $1,166 $1,157
Other notes payable(1) ............................................................................... 209 278
Current portion of long-term debt ...................................................................... 961 547
Total short-term debt(2) .......................................................................... $2,336 $1,982
(1) Includes collateralized borrowings from the Federal Home Loan Bank of New York of $199 million and $275 million at December 31, 2011 and 2010,
respectively, discussed in more detail below.
(2) Includes Prudential Financial debt of $1,252 million and $769 million at December 31, 2011 and 2010, respectively.
The weighted average interest rate on outstanding short-term debt, excluding the current portion of long-term debt was 0.31% and
0.39% at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, the Company was in compliance with all covenants
related to the above debt.
Commercial Paper
The Company issues commercial paper under the two programs described below. At December 31, 2011 and 2010, the weighted
average maturity of total commercial paper outstanding was 21 and 34 days, respectively.
Prudential Financial has a commercial paper program with an authorized capacity of $3.0 billion. Prudential Financial commercial
paper borrowings have been generally used to fund the working capital needs of Prudential Financial’s subsidiaries and provide short-term
liquidity at Prudential Financial. Prudential Financial’s outstanding commercial paper borrowings were $296 million and $283 million at
December 31, 2011 and 2010, respectively.
Prudential Funding, LLC (“Prudential Funding”), a wholly-owned subsidiary of Prudential Insurance, has a commercial paper
program, with an authorized capacity of $7.0 billion. 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 New Jersey Department of Banking and Insurance. Prudential
Funding’s outstanding commercial paper borrowings were $870 million and $874 million at December 31, 2011 and 2010, respectively.
Prudential Financial has issued a subordinated guarantee covering Prudential Funding’s domestic commercial paper program.
Federal Home Loan Bank of New York
Prudential Insurance is a member of the Federal Home Loan Bank of New York (“FHLBNY”). Membership allows Prudential
Insurance access to the FHLBNY’s financial services, including the ability to obtain collateralized loans and to issue collateralized funding
agreements that can be used as an alternative source of liquidity. FHLBNY borrowings and funding agreements are collateralized by
qualifying mortgage-related assets or U.S. Treasury securities, the fair value of which must be maintained at certain specified levels relative
to outstanding borrowings, depending on the type of asset pledged. FHLBNY membership requires Prudential Insurance to own member
stock and borrowings require the purchase of activity-based stock in an amount equal to 4.5% of outstanding borrowings. Under FHLBNY
guidelines, if Prudential Insurance’s financial strength ratings decline below A/A2/A Stable by S&P/Moody’s/Fitch, respectively, and the
FHLBNY does not receive written assurances from the New Jersey Department of Banking and Insurance (“NJDOBI”) regarding
Prudential Insurance’s solvency, new borrowings from the FHLBNY would be limited to a term of 90 days or less. Currently there are no
restrictions on the term of borrowings from the FHLBNY. All FHLBNY stock purchased by Prudential Insurance is classified as restricted
general account investments within “Other long-term investments,” and the carrying value of these investments was $173 million and $177
million as of December 31, 2011 and 2010, respectively.
NJDOBI permits Prudential Insurance to pledge collateral to the FHLBNY in an amount of up to 5% of its prior year-end statutory net
admitted assets, excluding separate account assets. Based on Prudential Insurance’s statutory net admitted assets as of December 31, 2010,
the 5% limitation equates to a maximum amount of pledged assets of $7.4 billion and an estimated maximum borrowing capacity (after
taking into account required collateralization levels and purchases of activity-based stock) of approximately $6.1 billion. Nevertheless,
FHLBNY borrowings are subject to the FHLBNY’s discretion and to the availability of qualifying assets at Prudential Insurance.
As of December 31, 2011, Prudential Insurance had pledged qualifying assets with a fair value of $2.8 billion, which supported
outstanding collateralized advances of $0.9 billion and collateralized funding agreements of $1.5 billion. The fair value of qualifying assets
that were available to Prudential Insurance but not pledged amounted to $5.6 billion as of December 31, 2011.
As of December 31, 2011, $199 million of the FHLBNY outstanding advances is reflected in “Short-term debt” and matures in December
2012 and the remaining $725 million is in “Long-term debt” and matures in December 2015. The funding agreements issued to the FHLBNY,
which are reflected in “Policyholders’ account balances,” have priority claim status above debt holders of Prudential Insurance.
200 Prudential Financial, Inc. 2011 Annual Report