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Global Credit Research - 02 Jun 2010
London, 02 June 2010 -- Moody's Investors Service today affirmed its ratings on Prudential plc
(Prudential, A2 senior debt negative outlook). The rating
action follows the Group's decision to abandon its acquisition of AIA.
Moody's continues to maintain a negative outlook on Prudential's ratings,
reflecting the potential reputational damage Prudential may face,
including any possible impact on market position and franchise,
following the ultimately unsuccessful pursuit of AIA.
Prudential today announced that it is seeking release from its obligations
under the Sale and Purchase Agreement previously agreed with AIG with
respect to the planned purchase of AIA. If, as Prudential
expects, the agreement with AIG is terminated, Prudential
will not proceed with the rights issue or other financing relating to
the proposed transaction. Prudential's statement follows
the announcement that AIG would not consider a revision of Prudential's
initial offer to a revised figure of USD 30.375 billion for AIA.
The revised offer would have constituted cash of USD 23 billion,
USD 5.375 billion equity in the form of new Prudential shares and
USD 2.0 billion perpetual tier 1 notes.
Moody's noted that, prior to today's announcement,
the negative outlook on Prudential's ratings was driven by execution
risk arising in implementing such a sizeable acquisition relative to the
size of Prudential; the original purchase amount represented c.1.5x
the pre-announcement market capitalisation of Prudential.
Execution risks also arose from integrating the various operations of
AIA Group and Prudential in thirteen diverse Asian markets and in respect
of regulatory approval.
Following the break-up of the transaction, Moody's
said that the underlying rationale for the negative outlook had changed
and now reflects Moody's view that the potential exists for reputational
damage to Prudential as a consequence of the failed bid, in terms
of future capital markets access, franchise and market position
(i.e. potentially future lower new business sales/greater
outflows of existing business), as well as some uncertainty surrounding
the future strategic direction of the Group.
Commenting on what could lead to a negative rating action, Moody's
cited depressed levels of future sales, relative to recent performance,
in the Group's key operating subsidiaries, together with a
reduced level of future capital markets access. Furthermore a substantial
deterioration in the Groups' capital position and/or financial leverage
of over 30 percent and earnings cover of less than 8x on a long-term
basis could also lead to negative rating actions.
Moody's also noted that the holding company debt ratings currently
benefit from narrower notching than standard practice for insurance groups.
Moody's added that, as the non-UK businesses grow,
it would continue to evaluate the holding company notching in light of
the increasing proportion of revenues/cashflows which are expected to
be derived from outside of the UK, which today represents the most
highly-rated operation of the Group.
Factors that could lead to the outlook reverting to stable include a confirmation
in the future reported results that there has been no deterioration in
the franchise, no reduction in profitability or capitalisation,
and a continued ability to source capital when necessary.
The following ratings were affirmed with a negative outlook:
Prudential Assurance Company- insurance financial strength rating
Scottish Amicable Insurance Fund- insurance financial strength
rating at Aa2;
Scottish Amicable Finance plc- subordinated debt rating at A1;
Prudential Annuities Limited- insurance financial strength rating
Prudential plc- senior debt at A2;
Prudential plc- subordinated debt at A3;
Prudential plc- junior subordinated debt at Baa1;
Prudential Capital- guaranteed Euro MTN senior debt at A2;
Jackson National Life Insurance Company- insurance financial strength
rating at A1;
Jackson National Life Insurance Company of New York- insurance
financial strength rating at A1;
Jackson National Life Insurance Company- Surplus Notes at A3;
Jackson National Life Funding, L.L.C.-
Note Issuance Program at A1;
Jackson National Life Global Funding- Note Issuance Program at
Prudential Retirement Income Limited- insurance financial strength
rating at Aa2.
The following ratings were affirmed:
Prudential plc- commercial paper at P-1;
Jackson National Life Insurance Company- Short-term Insurance
Financial Strength (STIFS) at Prime-1 (P-1)
Prudential plc is an international retail financial services group headquartered
in London with total assets of GBP228bn at year end 2009.
The last rating action was on 02 March 2010, when Moody's affirmed
Prudential's long-term ratings with a negative outlook and
affirmed the short-term ratings at P-1. The principal
methodology used in rating Prudential was "Moody's Global Rating Methodology
for Life Insurers", published in May 2010, which can be found
on www.moodys.com in the Rating Methodologies sub-directory
under the Research & Ratings tab. Other methodologies and factors
that may have been considered in the process of rating these issuers can
also be found in the Rating Methodologies sub-directory on Moody's
Financial Institutions Group
Moody's Investors Service Ltd.
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Moody's affirms Prudential Plc ratings; the outlook remains negative
No Related Data.
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