Prudential 2007 Annual Report Download - page 89

The following table sets forth total consolidated borrowings of the Company as of the dates indicated:
December 31, 2007 December 31, 2006
(in millions)
Borrowings:
General obligation short-term debt(1) .......................................................... $15,349 $12,452
General obligation long-term debt:
Senior debt ........................................................................... 10,103 8,545
Surplus notes(2) ....................................................................... 2,044 1,043
Total general obligation long-term debt ..................................................... 12,147 9,588
Total general obligations ........................................................... 27,496 22,040
Limited and non-recourse borrowing:
Limited and non-recourse short-term debt ................................................... 308 84
Limited and non-recourse long-term debt(3) ................................................. 1,954 1,835
Total limited and non-recourse borrowing ................................................... 2,262 1,919
Total borrowings(4) ............................................................... 29,758 23,959
Total asset-based financing .............................................................. 17,860 19,123
Total borrowings and asset-based financings .......................................... $47,618 $43,082
(1) As of December 31, 2006, included $250 million of fixed rate surplus notes that matured in July 2007.
(2) As of December 31, 2007 and 2006, included $1.600 billion and $600 million, respectively, of surplus notes issued by subsidiaries of Prudential
Insurance to fund regulatory reserves.
(3) As of both December 31, 2007 and 2006, $1.750 billion of limited and non-recourse debt outstanding was attributable to the Closed Block Business.
(4) Does not include $8.5 billion and $6.5 billion of medium-term notes of consolidated trust entities secured by funding agreements purchased with the
proceeds of such notes as of December 31, 2007 and 2006, respectively. These notes are included in “Policyholders’ account balances.” For additional
information see “—Funding Agreement Notes Issuance Program.”
Total general debt obligations increased by $5.456 billion from December 31, 2006 to December 31, 2007, reflecting a $2.559 billion
net increase in long-term debt and a $2.897 billion net increase in short-term debt. The net increase in long-term debt was primarily driven
by the net issuance of medium-term notes, retail medium-term notes, and surplus notes, partially offset by the reclassification of long-term
debt to short-term debt, during 2007. The net increase in short-term debt was primarily due to higher outstanding commercial paper
supporting our operating businesses, floating rate convertible senior notes issued in December 2007, and the reclassification of long-term
debt to short-term debt, partially offset by the repayment of the floating rate convertible senior notes issued in November 2005.
Prudential Funding’s commercial paper and master note borrowings were $7.3 billion as of December 31, 2007 and 2006. The
weighted average interest rates on the commercial paper borrowings and master notes were 5.10% and 4.97% for the years ended
December 31, 2007 and 2006, respectively. Prudential Financial has issued a subordinated guarantee covering Prudential Funding’s
domestic commercial paper program.
During the latter half of 2007, the financing cost of Prudential Funding’s commercial paper was relatively unchanged versus its
historical cost basis relative to the target federal funds rate. Prudential Funding’s commercial paper is rated A-1+, P-1, F1+ by Standard &
Poor’s, Moody’s, and Fitch, 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, 2007 and 2006, of which $600 million was reflected in the general obligation short-term debt as of December 31,
2007. The weighted average interest rates on Prudential Funding’s long-term debt, including the effect of interest rate hedging activity,
were 6.19%, and 5.87% for the years ended December 31, 2007 and 2006, respectively.
Prudential Insurance had outstanding fixed rate surplus notes totaling $444 million and $693 million as of December 31, 2007 and
2006, respectively, of which $250 million, which matured in July 2007, was 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 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 by subsidiary life insurers 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. In both the third and fourth quarter of 2007, the subsidiary issued an additional $250 million of surplus notes, resulting
in a total of $1.1 billion of notes currently outstanding under this facility. See Note 12 to our Consolidated Financial Statements for
additional information.
During the fourth quarter of 2007, a subsidiary of Prudential Insurance issued $500 million of 45-year floating rate surplus notes to an
unaffiliated financial institution for the purpose of financing certain regulatory reserves required to be held by subsidiary life insurers in
Prudential Financial 2007 Annual Report 87