Prudential 2005 Annual Report Download - page 71

In November 2005, Prudential Financial issued in a private placement $2.0 billion of floating rate convertible senior notes, convertible
by the holders at any time after issuance into cash and shares of the Company’s Common Stock. The conversion price, initially $90 per
share, is subject to adjustment upon certain corporate events. The conversion feature requires net settlement in shares; therefore, upon
conversion, a holder would receive cash equal to the par amount of the convertible notes surrendered for conversion and shares of
Prudential Financial Common Stock only for the portion of the settlement amount in excess of the par amount, if any. Prudential Financial
used substantially all of the offering proceeds to purchase an investment grade fixed income investment portfolio as well as to repurchase
under Prudential Financial’s existing share repurchase authorization shares of its Common Stock.
Current capital markets activities for the Company on a consolidated basis principally consist of unsecured short-term and long-term
debt borrowings issued by Prudential Funding and Prudential Financial, unsecured third party bank borrowing, and asset-based or secured
financing. The secured financing arrangements include transactions such as securities lending and repurchase agreements, which we
generally use to finance liquid securities in our short-term spread portfolios, primarily within Prudential Insurance.
The following table sets forth total consolidated borrowings of the Company as of the dates indicated:
December 31, 2005 December 31, 2004
(in millions)
Borrowings:
General obligation short-term debt ............................................................. $11,113 $ 4,043
General obligation long-term debt:
Senior debt ........................................................................... 5,772 5,128
Surplus notes ......................................................................... 693 692
Total general obligation long-term debt ..................................................... 6,465 5,820
Total general obligations ........................................................... 17,578 9,863
Limited and non-recourse borrowing:
Limited and non-recourse short-term debt ................................................... 1 1
Limited and non-recourse long-term debt(1) ................................................. 1,805 1,807
Total limited and non-recourse borrowing ................................................... 1,806 1,808
Total borrowings(2) ............................................................... 19,384 11,671
Total asset-based financing .............................................................. 18,558 16,654
Total borrowings and asset-based financings .......................................... $37,942 $28,325
(1) As of December 31, 2005 and December 31, 2004, $1.8 billion of limited and non-recourse debt outstanding was attributable to the Closed Block
Business.
(2) Does not include $4.2 billion and $2.8 billion of medium-term notes of consolidated trust entities secured by funding agreements purchased with the
proceeds of such notes as of December 31, 2005 and December 31, 2004, respectively. These notes are included in “Policyholders’ account balances.”
For additional information see “—Funding Agreement Notes Issuance Program.”
Total general debt obligations increased by $7,715 million, or 78%, from December 31, 2004 to December 31, 2005, reflecting a $645
million net increase in long-term debt and a $7,070 million net increase in short-term debt. The increase in long-term debt was driven
primarily by the net issuance of $576 million of retail medium-term notes by Prudential Financial under our retail note program and $848
million of medium-term notes issued under our medium-term note program. The net increase in short-term debt was driven by the issuance
of the convertible notes and opportunities in our short- and medium-term spread portfolio.
Prudential Funding’s commercial paper and master note borrowings as of December 31, 2005 and December 31, 2004 were $6.9
billion and $2.1 billion, respectively. In the second quarter of 2002, Prudential Financial issued a subordinated guarantee covering
Prudential Funding’s domestic commercial paper program. The weighted average interest rates on the commercial paper borrowings and
master notes were 3.27%, 1.34%, and 1.13% for the year ended December 31, 2005, 2004 and 2003, respectively.
The total principal amount of debt outstanding under Prudential Funding’s domestic medium-term note programs was $772 million, as
of both December 31, 2005 and December 31, 2004. The weighted average interest rates on Prudential Funding’s long-term debt, including
the effect of interest rate hedging activity, were 4.09%, 2.13%, and 1.87% for the years ended December 31, 2005, 2004 and 2003,
respectively.
Prudential Insurance had outstanding surplus notes totaling $693 million and $692 million as of December 31, 2005 and December 31,
2004, respectively. These debt securities, which are included as surplus of Prudential Insurance on a statutory accounting basis, are
subordinated to other Prudential Insurance borrowings and to policyholder obligations and are subject to regulatory approvals for principal
and interest payments.
Our total borrowings consist of capital debt, investment related debt, securities business related debt and debt related to specified other
businesses. Capital debt is borrowing that is used or will be used to meet the capital requirements of Prudential Financial as well as
borrowings invested in equity or debt securities of direct or indirect subsidiaries of Prudential Financial and subsidiary borrowings utilized
Prudential Financial 2005 Annual Report 69