OREANDA-NEWS. S&P Global Ratings today assigned its 'A-' issue rating to the $725 million perpetual junior subordinated notes to be issued by U. K.-based global multiline insurance group Prudential PLC (A+/Stable/A-1).

In accordance with our criteria for subordinated debt issues, we rate the notes two notches below our 'A+' long-term counterparty credit rating on Prudential PLC. Our rating on the junior subordinated notes is based on our understanding that the notes are issued under the group's ?6 billion medium-term note program and that the noteholders will be subordinated to the group's senior creditors. We also take into account that Prudential PLC has the option to defer interest if, during the previous six-month period, no dividend on any class of shares has been declared. In addition, we understand that mandatory interest deferral applies if minimum capital requirements are breached or if the U. K.'s Prudential Regulation Authority considers the regulatory capital ratio to be at risk.

Prudential PLC can call the notes in 2021 and on each interest payment date thereafter, subject to conditions for redemption, including regulatory approval. The group also has the right to redeem the notes after a tax, rating agency, or regulatory event. However, any early redemption within the first five years after issuance is subject to replacement by at least equivalent own funds. The coupon is fixed, with no step-up, and the first call date is five years after issuance.

We expect to classify the junior subordinated notes as having intermediate equity content under our hybrid criteria and to include the notes, in line with similar hybrid notes, in our calculation of the company's total adjusted capital (TAC) up to a maximum of 25%. TAC is the basis for our risk-based capital adequacy analysis. The inclusion of the notes in TAC depends on whether the notes will be eligible for inclusion in Prudential PLC's regulatory solvency capital.

Including this junior subordinated debt issuance, we estimate that Prudential PLC's financial leverage (debt plus hybrids, divided by the sum of economic capital available, debt, and hybrids) will not change our view on the company's financial flexibility, which we regard as strong. We believe the fixed-charge coverage ratio (EBITDA divided by interest on senior and subordinated debt) is likely to remain in line with our base-case assumption of more than 8x.