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Author: junkman02 Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 35345  
Subject: Re: Bond-Buying Due Diligence? Date: 3/9/2009 1:58 PM
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Pru, Again

February 19, 2009
DOWN 3.04 to 19.57... Fitch Ratings downgrades PRU's Sr. unsecured debt rating to 'BBB' from 'A-' and commercial paper rating to 'F2' from 'F1', as well as the insurer financial strength ratings of PRU's primary domestic life insurance subsidiaries to 'A+' from 'AA-'. The Rating Outlook is Negative. Says ratings actions reflect Fitch's updated review of PRU's exposure to the volatile credit and investment market conditions, which are negatively impacting its investment results, earnings performance and capital levels.


February 19, 2009
03:23 pm ET ... S&P REITERATES BUY RECOMMENDATION ON SHARES PRUDENTIAL FINANCIAL (PRU 19.44****): PRU shares are selling off today following a credit agency's downgrade of PRU's unsecured debt rating two notches to 'BBB'. The rating agency believes PRU's financial position could be adversely impacted by both its debt levels and its exposure to volatile equity and credit markets. While we expect investors will be increasingly critical of the financial health of the life insurers due to current market conditions, we think PRU's liquidity and capital positions are solid and that the firm has internal resources that could help bolster its financial position. /B.Howlett


My take? I'd believe triple-BBB from how their debt is being priced. But S&P's single A defies common sense. But now we're quibbling about one rating notch. The real focus should be on the company's numbers, not an opinion about those numbers reflected in a rating. Hence, the would-be investor will have to do her or his own due diligence, first, to determine what the relevant numbers might be, and then, second, as Marty Whitman insists, to determine what the meaning of those numbers --taken as a whole-- might be.

The task, as he suggests, .."isn't to find to find perfect investments (because everything worth buying will have something wrong with it, but) but to try to determine whether there are arguments against proceeding." That's a cautious, "from-the-outside-in" sort of approach rather than "going straight for the gusto" (by saying "single-A and yield 14%, so I'm in").

IMHO, either approach would work. The former permits taking bigger positions (because one is more sure of the numbers). The latter requires tighter risk control (aka, more attention to position sizing).

folgore, thanks for dumping the problem of investigating Pru's debt into the community's lap. This has been fun.

Charlie
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