UPDATE: Prudential Financial: Holds $375 Million In Fed's CP Program
February 19 2009 - 4:31PM
Dow Jones News
Life insurer Prudential Financial's holding company is no longer
eligible to participate in the Federal Reserve's Commercial Paper
Funding Program due to a one-notch downgrade by Fitch Ratings
Thursday. The company's insurance subsidiary will still take part,
the company said.
Fitch downgraded Prudential Financial Inc.'s (PRU) commercial
paper rating to F2 from F1, putting it below the minimum rating for
participation in the Federal Reserve program, which is part of the
Fed's financial-services rescue plan.
Fitch also cut the insurer financial strength ratings of
Prudential's primary domestic life insurance subsidiaries to A+
from AA-.
Prudential has $800 million in commercial paper outstanding, and
of that $375 million is held through the program, said Bob
DeFillippo, a Prudential spokesman.
He said he didn't know how much of the $375 million is held by
the holding company that was downgraded, but said that the
insurance company subsidiary will continue to participate in the
program.
The Fed program was launched in October to improve liquidity in
short-term funding markets by financing the purchase of highly
rated unsecured and asset-backed commercial paper from eligible
issuers. With the Fitch downgrade, Prudential's holding company
fell below the minimum eligible rating.
Losing the ability to participate in the program "is not
positive, but far from dire as the holding company has sufficient
resources," said Andrew Kligerman, an analyst with UBS Investment
Research, in a note Thursday.
Kligerman estimated that Prudential's holding company held $600
million in commercial paper through the program, which DeFilippo
said he couldn't confirm.
In recent weeks, both Standard and Poor's and Moody's Investors
Service have changed their outlook on Prudential's ratings, but
have left the ratings themselves unchanged.
DeFillippo said that Prudential's liquidity projections didn't
factor in continued access to the Federal Reserve program and said
that the company isn't dependent on access to the commercial paper
market or debt capital markets to maintain liquidity.
In its downgrade, Fitch cited Prudential's exposure to volatile
credit and investment market conditions, and its potential "future
pressure on the financial flexibility of the consolidated
enterprise as a whole."
Fitch also downgraded units of Principal Financial Group Inc.
(PFG) and Genworth Financial Inc. (GNW).
Life insurers shares slumped Thursday. In recent trading,
Prudential was down 14%, Hartford Financial Services Group (HIG)
had dropped 22%, Genworth was down 17%, and Principal was
unchanged.
-By Lavonne Kuykendall, Dow Jones Newswires; 312-750-4141;
lavonne.kuykendall@dowjones.com