Prudential 2003 Annual Report Download - page 136

Download and view the complete annual report

Please find page 136 of the 2003 Prudential annual report below. You can navigate through the pages in the report by either clicking on the pages listed below, or by using the keyword search tool below to find specific information within the annual report.

Page out of 180

  • 1
  • 2
  • 3
  • 4
  • 5
  • 6
  • 7
  • 8
  • 9
  • 10
  • 11
  • 12
  • 13
  • 14
  • 15
  • 16
  • 17
  • 18
  • 19
  • 20
  • 21
  • 22
  • 23
  • 24
  • 25
  • 26
  • 27
  • 28
  • 29
  • 30
  • 31
  • 32
  • 33
  • 34
  • 35
  • 36
  • 37
  • 38
  • 39
  • 40
  • 41
  • 42
  • 43
  • 44
  • 45
  • 46
  • 47
  • 48
  • 49
  • 50
  • 51
  • 52
  • 53
  • 54
  • 55
  • 56
  • 57
  • 58
  • 59
  • 60
  • 61
  • 62
  • 63
  • 64
  • 65
  • 66
  • 67
  • 68
  • 69
  • 70
  • 71
  • 72
  • 73
  • 74
  • 75
  • 76
  • 77
  • 78
  • 79
  • 80
  • 81
  • 82
  • 83
  • 84
  • 85
  • 86
  • 87
  • 88
  • 89
  • 90
  • 91
  • 92
  • 93
  • 94
  • 95
  • 96
  • 97
  • 98
  • 99
  • 100
  • 101
  • 102
  • 103
  • 104
  • 105
  • 106
  • 107
  • 108
  • 109
  • 110
  • 111
  • 112
  • 113
  • 114
  • 115
  • 116
  • 117
  • 118
  • 119
  • 120
  • 121
  • 122
  • 123
  • 124
  • 125
  • 126
  • 127
  • 128
  • 129
  • 130
  • 131
  • 132
  • 133
  • 134
  • 135
  • 136
  • 137
  • 138
  • 139
  • 140
  • 141
  • 142
  • 143
  • 144
  • 145
  • 146
  • 147
  • 148
  • 149
  • 150
  • 151
  • 152
  • 153
  • 154
  • 155
  • 156
  • 157
  • 158
  • 159
  • 160
  • 161
  • 162
  • 163
  • 164
  • 165
  • 166
  • 167
  • 168
  • 169
  • 170
  • 171
  • 172
  • 173
  • 174
  • 175
  • 176
  • 177
  • 178
  • 179
  • 180

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
10. SHORT-TERM AND LONG-TERM DEBT (continued)
$144 million and $287 million for the years ended December 31, 2003, 2002 and 2001, respectively, is included in
“Net investment income.”
Included in “Policyholders’ account balances” are additional debt obligations of the Company. See Note 7 for
further discussion.
Prudential Holdings, LLC Notes
On the date of demutualization, Prudential Holdings, LLC (“PHLLC”), a wholly owned subsidiary of Prudential
Financial, issued $1.75 billion in senior secured notes (the “IHC debt”). PHLLC owns the capital stock of Prudential
Insurance and does not have any operating businesses of its own. The IHC debt represents senior secured obligations of
PHLLC with limited recourse; neither Prudential Financial, Prudential Insurance nor any other affiliate of PHLLC is an
obligor or guarantor on the IHC debt. The IHC debt is collateralized by 13.8% of the outstanding common stock of
Prudential Insurance and other items specified in the indenture, primarily the “Debt Service Coverage Account” (the
“DSCA”) discussed below.
PHLLC’s ability to meet its obligations under the IHC debt is dependent principally upon sufficient available
funds being generated by the Closed Block Business and the ability of Prudential Insurance, the sole direct subsidiary
of PHLLC, to dividend such funds to PHLLC. The payment of scheduled principal and interest on the Series A notes
and the Series B notes is insured by a financial guarantee insurance policy. The payment of principal and interest on the
Series C notes is not insured. The IHC debt is redeemable prior to its stated maturity at the option of PHLLC and, in
the event of certain circumstances, the IHC debt bond insurer can require PHLLC to redeem the IHC debt.
Net proceeds from the IHC debt amounted to $1,727 million. The majority of the net proceeds, or $1,218 million,
was distributed to Prudential Financial through a dividend on the date of demutualization for use in the Financial
Services Businesses. Net proceeds of $437 million were deposited to a restricted account within PHLLC. This
restricted account, referred to as the DSCA, constitutes additional collateral for the IHC debt. The remainder of the net
proceeds, or $72 million, was used to purchase a guaranteed investment contract to fund a portion of the financial
guarantee insurance premium related to the IHC debt.
Growing and Protecting Your Wealth134