Prudential 2005 Annual Report Download - page 126

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
11. SHORT-TERM AND LONG-TERM DEBT
Short-term Debt
Short-term debt at December 31, is as follows:
2005 2004
(in millions)
Commercial paper .............................................................................................. $ 7,563 $2,447
Floating rate convertible senior notes ............................................................................... 2,000 —
Notes payable
Note subject to set-off arrangements ........................................................................... 95 —
Other notes payable ......................................................................................... 811 1,539
Current portion of long-term debt .................................................................................. 740 58
Sub-total ..................................................................................................... 11,209 4,044
Less assets under set-off arrangements(1) ....................................................................... 95 —
Total short-term debt ............................................................................................ $11,114 $4,044
(1) Assets under set-off arrangements represent a reduction in the amount of note payables included in short-term debt, relating to an arrangement where
valid rights of set-off exist and it is the intent of both parties to settle on a net basis under legally enforceable arrangements.
The weighted average interest rate on outstanding short-term debt, excluding the current portion of long-term debt and
convertible debt, was approximately 4.2% and 2.2% at December 31, 2005 and 2004, respectively.
At December 31, 2005, the Company had $3,845 million in committed lines of credit from numerous financial institutions, of
which $3,832 million were unused. These lines of credit generally have terms ranging from one to five years.
The Company issues commercial paper primarily to manage operating cash flows and existing commitments, to meet working
capital needs and to take advantage of current investment opportunities. At December 31, 2005 and 2004, a portion of commercial
paper borrowings were supported by $3,000 million and $2,500 million of the Company’s existing lines of credit, respectively. At
December 31, 2005 and 2004, the weighted average maturity of commercial paper outstanding was 16 and 23 days, respectively.
On November 16, 2005, Prudential Financial issued $2.0 billion in floating rate convertible senior notes, convertible by the
holders at any time after issuance into cash and shares of Prudential Financial’s Common Stock. The conversion price, initially $90
per share, is subject to adjustment upon certain corporate events, such as certain changes in control or increases to the Company’s
dividends above the current $0.78 annual dividend per share. The conversion feature requires net settlement in shares; therefore,
upon conversion, a holder would receive cash equal to the par amount of the notes surrendered for conversion and shares of
Prudential Financial, Inc. Common Stock only for the portion of the settlement amount in excess of the par amount, if any. The
convertible notes are redeemable by Prudential Financial on or after May 20, 2007, at par plus accrued interest. Holders may require
Prudential Financial to repurchase the convertible notes, at par plus accrued interest, on May 15, 2007 or on November 15, 2010,
2015, 2020, 2025, and 2030. The Company has entered into a registration rights agreement with the investors in the convertible
debt, which requires that the Company attempt to register the convertible debt and the shares into which the debt is convertible for
resale. In the event the Company is unable to register the shares, or is unable to maintain the effectiveness of such registration, the
Company could be required to pay liquidated damages of 0.25% applied to the par amount of the notes for each interest period such
default continues. The interest rate on the convertible notes is a floating rate equal to 3-month LIBOR minus 2.76%, to be reset
quarterly. For the period from November 16, 2005, the date of issuance, to February 15, 2006, the first interest payment date, the
interest rate is 1.57%.
Prudential Financial 2005 Annual Report124