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Rating Action:

MOODY'S AFFIRMS PRUDENTIAL FINANCIAL, INC.’S SENIOR DEBT RATING AT A3, NEGATIVE OUTLOOK FOLLOWING ANNOUNCEMENT WITH WACHOVIA TO CREATE NEW RETAIL BROKERAGE VENTURE; AFFIRMS A1 INSURANCE FINANCIAL STRENGTH RATING OF PRUDENTIAL INSURANCE, STABLE OUTLOOK

19 Feb 2003
MOODY'S AFFIRMS PRUDENTIAL FINANCIAL, INC.’S SENIOR DEBT RATING AT A3, NEGATIVE OUTLOOK FOLLOWING ANNOUNCEMENT WITH WACHOVIA TO CREATE NEW RETAIL BROKERAGE VENTURE; AFFIRMS A1 INSURANCE FINANCIAL STRENGTH RATING OF PRUDENTIAL INSURANCE, STABLE OUTLOOK

New York, February 19, 2003 -- Moody's Investors Service affirmed the credit ratings of Prudential Financial, Inc. (PFI -- senior debt rating at A3 and short-term debt rating of Prime-2) and Prudential Insurance Company of America (PICA -- insurance financial strength rating of A1) following PFI's joint announcement with Wachovia Corporation to create a new legal entity that will house the retail brokerage and financial advisory private client groups of both Wachovia and PFI. The legal entity will be a subsidiary of Wachovia Corporation. Wachovia will own 62% of the new company and PFI will own the remaining 38%.

The negative rating outlook for PFI and stable rating outlook for PICA remain unchanged at this time. Moody's stated that the transaction has the potential to strengthen PFI's financial advisory business and provide better earnings and cash flows than it would have otherwise had as a stand-alone entity, although the success of this new company in this very challenging environment for retail brokerage is uncertain. The new entity's combined business model, scale, expense structure, and profitability will be better positioned for continued market downturns than PFI's business platform is currently positioned. The rating agency also commented that the transaction does provide some downside protection to PFI through the existence of a put option in years two through five at PFI's cost basis in the new company. Moody's said that it will continue to assess the potential favorable effects of this transaction and any potential disposition of Prudential Property and Casualty on the credit profile of PFI and its outlook.

As part of this joint venture agreement, PFI will contribute a significant portion of their securities business, including the private client group, clearing and settlement operations, and select international brokerage businesses. In addition, Prudential will also contribute cash to cover a portion of the new entity's cost reduction plans and one-time charges. In return, Prudential will receive a 38% minority interest in this newly formed company.

Moody's noted that combining Wachovia's and Prudential's retail securities businesses together will provide the newly created company significant scale. As part of this joint venture agreement, Prudential has the added benefit in that its insurance products will also be sold through this new company.

Moody's noted that while the earnings volatility attributable to Prudential Securities may potentially be reduced because of this joint venture, it will not be entirely eliminated, as would have been the case with an outright sale of this business unit. Moody's restated that the credit ratings for PFI and its affiliates are based primarily on the large block of participating life insurance at Prudential Insurance Company of America, its good capital position, its growing international insurance operations, and its strong brand name. Prudential has demonstrated a solid track record to grow profitably in the international arena, and we anticipate that will continue over the near term.

These strengths are tempered by the challenges of restoring market share in the US individual life insurance market, reducing the company's relatively high, albeit improving expense structure, and meeting the increasingly heightened competition among financial services companies. Moody's also notes that as a public company, PFI is now under substantial pressure to increase its return on equity, which may heighten credit risks for both policyholders and creditors.

The following ratings were affirmed with a negative outlook:

Prudential Financial, Inc. -- A3 senior unsecured debt and issuer ratings;

Prudential Financial Capital Trust I -- A3 preferred stock rating;

Prudential Property and Casualty Company -- A2 insurance financial strength rating.

The following ratings were affirmed with a stable outlook:

Prudential Financial, Inc. -- Prime-2 short-term debt rating for commercial paper;

Prudential Funding, LLC -- Prime-1 short-term debt rating for commercial paper and extendible commercial notes, and A2 senior unsecured debt rating;

Prudential Holdings LLC -- A3 secured debt rating;

Prudential Holdings LLC -- Aaa senior secured debt rating;

Prudential Insurance Company of America -- A1 insurance financial strength rating; A2 senior unsecured debt rating; and A3 surplus and capital notes ratings;

Pruco Life Insurance Company -- A1 insurance financial strength rating;

The Gibraltar Life Insurance Company -- A2 insurance financial strength rating;

Dryden Investor Trust -- A2 senior debt rating.

PFI reported approximately $373 billion of consolidated proprietary assets under management as of December 31, 2002. The company reported net income of $194 million for calendar year 2002, including a loss of $485 million in the closed block business. Participating policyholders ultimately share in the experience of the closed block business through adjustments in policyholder dividends.

Moody's insurance financial strength ratings are opinions of the ability of insurance companies to repay punctually senior policyholder claims and obligations. For more information, visit our website at www.moodys.com/insurance.

New York
Robert Riegel
Managing Director
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
Patrick Finnegan
Senior Vice President
Financial Institutions Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

No Related Data.
© 2019 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

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