Prudential 2006 Annual Report Download - page 82

Prudential Insurance had outstanding fixed rate surplus notes totaling $693 million as of December 31, 2006 and 2005, of which $250
million were reflected in the general obligation short-term debt as of December 31, 2006. 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.
During the fourth quarter of 2006, a subsidiary of Prudential Insurance entered into a Surplus Note Purchase Agreement with an
unaffiliated financial institution that provides for the issuance of up to $3 billion of ten-year floating rate surplus notes for the purpose of
financing certain regulatory reserves required to be held in connection with the intercompany reinsurance of certain term life insurance
policies. Surplus notes issued under this facility are subordinated to policyholder obligations and are subject to regulatory approvals for
principal and interest payments. Concurrent with entering into the agreement, the subsidiary issued $600 million of notes under this facility.
See Note 12 to our Consolidated Financial Statements for additional information.
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
for capital requirements. Investment related borrowings consist of debt issued to finance specific investment assets or portfolios of
investment assets, including institutional spread lending investment portfolios, real estate and real estate related investments held in
consolidated joint ventures, as well as institutional and insurance company portfolio cash flow timing differences. Securities business
related debt consists of debt issued to finance primarily the liquidity of our broker-dealers and our capital markets and other securities
business related operations. Debt related to specified other businesses consists of borrowings associated with our individual annuity
business, real estate franchises and relocation services. Borrowings under which either the holder is entitled to collect only against the
assets pledged to the debt as collateral, or has only very limited rights to collect against other assets, have been classified as limited and
non-recourse debt. Consolidated borrowings as of December 31, 2006 and 2005 include $1.750 billion of limited and non-recourse debt
attributable to the Closed Block Business.
The following table summarizes our borrowings, categorized by use of proceeds, as of the dates indicated:
December 31, 2006 December 31, 2005
(in millions)
General obligations:
Capital debt .......................................................................... $ 4,377 $ 4,199
Investment related ..................................................................... 13,907 9,558
Securities business related ............................................................... 2,334 2,865
Specified other businesses ............................................................... 1,535 956
Total general obligations ............................................................ 22,153 17,578
Limited and non-recourse debt ................................................................ 1,806 1,806
Total borrowings ................................................................. $23,959 $19,384
Short-term debt ............................................................................ $12,536 $11,114
Long-term debt ............................................................................ 11,423 8,270
Total borrowings ................................................................. $23,959 $19,384
Borrowings of Financial Services Businesses .................................................... $20,471 $15,967
Borrowings of Closed Block Business .......................................................... 3,488 3,417
Total borrowings ................................................................. $23,959 $19,384
Funding Agreement Notes Issuance Program
In 2003, Prudential Insurance established a Funding Agreement Notes Issuance Program pursuant to which a Delaware statutory trust
issues medium-term notes (which are included in our statements of financial position in “Policyholders’ account balances” and not included
in the foregoing table) secured by funding agreements issued to the trust by Prudential Insurance and included in our Retirement segment.
The funding agreements provide cash flow sufficient for the debt service on the related medium-term notes. The medium-term notes are
sold in transactions not requiring registration under the Securities Act of 1933, as amended. In the third quarter of 2006, the authorization
amount of the program was increased from $6 billion to $15 billion. As of December 31, 2006 and 2005, the outstanding aggregate
principal amount of such notes totaled approximately $6.5 billion and $4.2 billion, respectively. The notes have fixed or floating interest
rates and original maturities ranging from two to seven years.
Lines of Credit and Other Credit Facilities
As of December 31, 2006, Prudential Financial, Prudential Insurance and Prudential Funding had unsecured committed lines of credit
totaling $4.0 billion. In December 2006, Prudential Financial entered into a new $2.5 billion 5-year credit facility replacing a $500 million
364-day facility, a $1.0 billion 5-year facility expiring in December 2010, and a $750 million facility expiring in December 2007, which
was available only to Prudential Financial and was previously used to support an asset-backed commercial paper conduit. Prudential
Financial discontinued use of the asset-backed commercial paper conduit due to increased liquidity at Prudential Financial and lower direct
financing costs as a result of the upgrade in our short-term debt rating to A-1 by Standard and Poor’s during the first quarter of 2006.
During the third quarter of 2006, Prudential Financial began directly financing the assets previously financed through the asset-backed
commercial paper conduit.
PRUDENTIAL FINANCIAL, INC. 2006 ANNUAL REPORT
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