Prudential 2001 Annual Report Download - page 127

Prudential Financial, Inc.
Notes to Consolidated Financial Statements
11. Short-term and Long-term Debt (continued)
Long-term Debt
Long-term debt at December 31, is as follows:
Description Maturity Dates Rate 2001 2000
(In Millions)
Prudential Holdings, LLC notes (the “IHC debt”)
Series A ............................................................. 2017 (a) (b) $ 333 $ —
Series B ............................................................. 2023 (a) 7.245% 777 —
Series C ............................................................. 2023 (a) 8.695% 640 —
Fixed rate notes ...........................................................
U.S. Dollar ........................................................... 2002-2035 5.97%-15.00% 1,147 758
Japanese Yen ......................................................... 2010 (c) 348 —
Floating rate notes (“FRNs”) .................................................
U.S. Dollar ........................................................... 2002-2035 (d) 975 640
Canadian Dollar ....................................................... 2003 (e) 80 96
Japanese Yen ......................................................... 2010 (f) 15 —
Great Britain Pound .................................................... 2002 (g) — 20
Surplus notes ............................................................. 2003-2025 6.875%-8.30% 989 988
Total long-term debt ........................................................ $5,304 $2,502
(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 in 2001 was 2.74%.
(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 2.07% to 9.42% in 2001 and 5.99% to 7.08% in 2000.
The 2000 interest rate range excludes a $29 million S&P 500 index linked note which had an interest rate range of 0.10% to 0.46%.
(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%. This rate ranged from 6.00% to 6.84% and 6.12% to 6.84% in 2001
and 2000, respectively.
(f) The interest rate on the Japanese Yen denominated FRN is based on the Yen LIBOR plus 1.20%. The interest rate in 2001 was 1.32%.
(g) The interest rate on the Great Britain Pound denominated FRN was based on the three month Sterling LIBOR plus 0.10% per year. This rate
ranged from 6.22% to 6.89% in 2000.
Several long-term debt agreements have restrictive covenants related to the total amount of debt, net tangible assets
and other matters. At December 31, 2001 and 2000, 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 and $689 million
were outstanding at December 31, 2001 and 2000, respectively, 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, 2001, 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. The effect of these derivative
instruments is included in the calculation of the interest expense on the associated debt, and as a result, the effective
interest rates on the debt may differ from the rates reflected in the tables above. Floating rates are determined by
contractual formulas and may be subject to certain minimum or maximum rates. See Note 19 for additional
information on the Company’s use of derivative instruments.
Interest expense for short-term and long-term debt was $647 million, $1,056 million, and $863 million, for the years
ended December 31, 2001, 2000, and 1999, respectively. Securities business related interest expense of $287
million, $456 million and $312 million for the years ended December 31, 2001, 2000 and 1999, respectively, is
included in “Net investment income.”
Prudential Financial 2001 Annual Report 125