Prudential 2012 Annual Report Download - page 159

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
14. SHORT-TERM AND LONG-TERM DEBT (continued)
At December 31, 2012 and 2011, the Company was in compliance with all covenants related to the above debt.
Commercial Paper
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 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 (“NJDOBI”).
Prudential Funding maintains a support agreement with Prudential Insurance whereby Prudential Insurance has agreed to maintain
Prudential Funding’s tangible net worth at a positive level. Additionally, Prudential Financial has issued a subordinated guarantee covering
Prudential Funding’s 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. Under applicable law, the funding agreements issued to the FHLBNY have priority claim status above debt holders of
Prudential Insurance. 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. 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 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 $170 million and $173
million as of December 31, 2012 and 2011, 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, 2011,
the 5% limitation equates to a maximum amount of pledged assets of $7.7 billion and an estimated maximum borrowing capacity (after
taking into account required collateralization levels and purchases of activity-based stock) of approximately $6.4 billion, of which $2.3
billion was outstanding. Nevertheless, FHLBNY borrowings are subject to the FHLBNY’s discretion and to the availability of qualifying
assets at Prudential Insurance.
As of December 31, 2012, Prudential Insurance had pledged qualifying assets with a fair value of $2.9 billion that supported
outstanding collateralized advances and collateralized funding agreements. During 2012, a $725 million collateralized advance was re-
issued in the form of a funding agreement. Of this amount, $445 million now supports proprietary spread lending and is classified as
Policyholders’ account balances, and the remaining $280 million continues to be classified as long term debt. The fair value of qualifying
assets that were available to Prudential Insurance but not pledged amounted to $3.1 billion as of December 31, 2012.
Federal Home Loan Bank of Boston
Prudential Retirement Insurance and Annuity Company (“PRIAC”) is a member of the Federal Home Loan Bank of Boston
(“FHLBB”). Membership allows PRIAC access to collateralized advances which will be classified in “Short-term debt” or “Long-term
debt,” depending on the maturity date of the obligation. PRIAC’s membership in FHLBB requires the ownership of member stock and
borrowings from FHLBB require the purchase of activity-based stock in an amount between 3.0% and 4.5% of outstanding borrowings
depending on the maturity date of the obligation. As of December 31, 2012, PRIAC had no advances outstanding under the FHLBB
facility.
The Connecticut Department of Insurance (“CTDOI”) permits PRIAC to pledge up to $2.6 billion in qualifying assets to secure
FHLBB borrowings through December 31, 2013. PRIAC must seek re-approval from CTDOI prior to borrowing additional funds after that
date. Based on available eligible assets as of December 31, 2012, PRIAC had an estimated maximum borrowing capacity, after taking into
consideration required collateralization levels and required purchases of activity-based FHLBB stock, of approximately $1.7 billion.
Credit Facilities
As of December 31, 2012, Prudential Financial and Prudential Funding maintained an aggregate of $3,750 million of unsecured
committed credit facilities consisting of a $2,000 million five-year facility expiring in December 2016 that has Prudential Financial as a
borrower and a $1,750 million three-year facility expiring in December 2014 that has both Prudential Financial and Prudential Funding as
borrowers. Each of the facilities may be used for general corporate purposes, including as backup liquidity for the Company’s commercial
paper programs discussed above. In November 2012, Prudential Financial obtained a $250 million loan under the five-year facility to fund
short-term operating needs within Asset Management and repaid the loan in December 2012. As of December 31, 2012, there were no
outstanding borrowings under either credit facility. Prudential Financial expects that it may continue to borrow under the five-year credit
facility from time to time to fund its working capital needs and those of its subsidiaries. In addition, up to $300 million of the five-year
facility may be drawn in the form of standby letters of credit that can be used to meet the Company’s operating needs.
Prudential Financial, Inc. 2012 Annual Report 157