Prudential Parent Disqualified From Commercial Paper (Update3)

By Andrew Frye
Bloomberg News
February 19, 2009

Feb. 19 (Bloomberg) -- Prudential Financial Inc., the second-largest U.S. life insurer, lost eligibility for the U.S. commercial paper program after a downgrade by Fitch Ratings, reducing the company's access to short-term debt markets.

"We no longer have the ability to borrow funds from the Commercial Paper Funding Facility" through the holding company, said Bob DeFillippo, a spokesman for the Newark, New Jersey- based insurer in an interview today. "The company's liquidity requirements are not dependent on the access to the commercial paper market or to debt capital markets," he said.

Prudential has an insurance unit that still qualifies, he said. The holding company has about $375 million outstanding to the program and will have "no problem" repaying the debt when it comes due at the end of April, said DeFillippo.

Prudential is selling its stake in Wachovia Securities after halving the quarterly dividend and suspending share buybacks to preserve capital amid investment declines. Competitors Hartford Financial Services Group Inc. and Genworth Financial Inc. previously lost access to the commercial paper program after downgrades.

"Losing $1.3 billion in total Commercial Paper Funding Facility capacity is not positive, but far from dire," Andrew Kligerman, an analyst with UBS AG, said today in a research note. "The holding company has sufficient resources."

Credit Rating

The holding company was eligible to borrow $1.3 billion from the program and the Prudential Funding LLC unit qualified for as much as $9.82 billion, according to the company's third- quarter regulatory filing in November.

Prudential's short-term debt rating was cut today by Fitch to F2 from F1 after the insurer posted two straight quarterly losses. Falling stock markets have forced Prudential to take losses on retirement products that guarantee minimum returns, even when equities decline.

Prudential dropped $3.59, or 16 percent, to $19.02 at 4:15 p.m. in New York Stock Exchange composite trading. The insurer has plunged more than 70 percent in the past six months.

"Prudential carries high levels of debt," Fitch said today in a statement. "Fitch views the high level of debt as potentially limiting Prudential's financial flexibility in the current environment."

The ratings firm "does not envision any near-term liquidity problems" related to Prudential's total debt, Fitch said in its statement.

North American insurers have posted more than $140 billion in writedowns and credit losses tied to the collapse of the U.S. housing market in the past two years. Prudential's share totals more than $9 billion through the end of 2008.

Prudential was downgraded by Standard & Poor's on Feb. 17 because of investment losses.

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