Prudential 2006 Annual Report Download - page 142

PRUDENTIAL FINANCIAL, INC.
Notes to Consolidated Financial Statements
12. SHORT-TERM AND LONG-TERM DEBT (continued)
At December 31, 2006, the Company had $4,088 million in committed lines of credit from numerous financial institutions,
substantially all of which 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, 2006 and 2005, a portion of commercial
paper borrowings were supported by $4,000 million and $3,000 million of the Company’s existing lines of credit, respectively. At
December 31, 2006 and 2005, the weighted average maturity of commercial paper outstanding was 18 and 16 days, respectively.
On each of December 7, 2006 and November 16, 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 Prudential
Financial’s Common Stock. The conversion prices, $104.21 per share for the December 2006 issuance and $90 per share for the
November 2005 issuance, are subject to adjustment upon certain corporate events. The conversion features require 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. The interest rate on the December 2006 issuance is a floating rate equal to 3-month LIBOR minus 2.4% to be reset
quarterly, and was 2.95% in 2006. The interest rate on the November 2005 issuance is a floating rate equal to 3-month LIBOR
minus 2.76%, to be reset quarterly, and ranged from 1.57% to 2.65% in 2006 and was 1.57% in 2005.
The floating rate senior convertible notes are redeemable by Prudential Financial, at par plus accrued interest, on or after
December 13, 2007 for the December 2006 issuance and on or after May 20, 2007 for the November 2005 issuance. Holders of the
notes may also require Prudential Financial to repurchase the notes, at par plus accrued interest, on contractually specified dates.
The first such date for the December 2006 issuance is December 12, 2007 and for the November 2005 issuance is May 15, 2007.
Prudential Financial has agreed to file prospectus supplements to register with the SEC resales of the convertible senior notes. In the
event the Company is unable to complete the registration process or maintain the effectiveness of this 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 under registration rights agreements entered into with the holders of the notes. The Company believes it is unlikely it will
default under the registration rights agreements.
Long-term Debt
Long-term debt at December 31, is as follows:
Maturity
Dates Rate 2006 2005
(in millions)
Prudential Holdings, LLC notes (the “IHC debt”)
Series A ............................................................ 2017(1) (2) $ 333 $ 333
Series B ............................................................ 2023(1) 7.245% 777 777
Series C ............................................................ 2023(1) 8.695% 640 640
Fixed rate notes:
Fixed rate note subject to set-off arrangements ............................. 2009-2011 4.45%-5.11% 1,692 957
Surplus notes ........................................................ 2007-2025 (3) 443 693
Other fixed rate notes ................................................. 2008-2035 3.00%-7.72% 7,802 5,242
Floating rate notes:
Surplus notes ........................................................ 2016 (4) 600 —
Other floating rate notes ............................................... 2008-2020 (5) 604 450
Sub-total ............................................................... 12,891 9,092
Less assets under set-off arrangements(6) ..................................... 1,468 822
Total long-term debt ...................................................... $11,423 $8,270
(1) 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.
(2) The interest rate on the Series A notes is a floating rate equal to LIBOR plus 0.875% per year. The interest rate ranged from 5.4% to 6.3% in 2006 and
3.4% to 5.4% in 2005.
(3) The interest rate on the fixed rate Surplus notes ranged from 7.65% to 8.3% in 2006 and 2005.
(4) The interest rate on the floating rate Surplus notes was 5.36% in 2006.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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