Genworth Financial Inc. may use the value of its stake in its Canadian mortgage insurance unit, Genworth MI Canada Inc., to borrow $450 million from investors.
The Richmond, Virginia-based insurer announced Monday that it has started the process of seeking a $450 million senior secured term loan.
“As currently contemplated, the security package for the term loan would include a pledge of the publicly listed shares of Genworth’s Canadian mortgage insurance subsidiary, Genworth MI Canada Inc., held by Genworth Financial International Holdings LLC, a wholly owned subsidiary of Genworth,” Genworth said in the deal announcement.
Structuring the loan as a “senior” loan means that the lenders involved in the arrangement would come before some other classes of creditors if Genworth ran into problems with repaying the loan.
Providing security, or collateral, for the loan would give the lenders another layer of protection.
Genworth said it intends to use the proceeds from the term loan, along with cash on hand, to pay off debts, including expenses related to $600 million in senior unsecured notes that will come due in May. Those notes pay an interest rate of 6.515%.
Genworth plans to close on the term arrangement in early March.
China Oceanwide Holdings Group Co. Ltd., a Beijing-based real estate development and financial services company, has been trying to acquire Genworth since October 2016.
China Oceanwide “has expressed an interest in participating in the term loan,” Genworth said. “Genworth and Oceanwide are in discussions to determine Oceanwide’s potential involvement in the secured financing.”
Units of Goldman Sachs and JPMorgan Chase are acting as joint lead arrangers and joint book runners for the term loan.
In a separate announcement, A.M. Best lowered its financial strength rating on Genworth’s Richmond-based Genworth Life and Annuity Insurance Company unit to B-, from B, and it reduced the financial strength ratings on Genworth insurance subsidiaries based on Wilmington, Del., and New York to B-, from B.
Genworth units continue to be active issuers of mortgage insurance, but the company has suspended sales of life insurance and annuities, and sales of long-term care insurance have been modest.
Genworth has about $900 million in holding company liquidity, and “cash flow from the domestic and international mortgage businesses remains good,” A.M. Best said.
The Richmond-based unit has a strong balance sheet, partly because of the suspension of new annuity sales, but the unit’s limited business profile has led to volatile operating performance, A.M. Best said.
The Wilmington-based unit, which focuses on selling long-term care insurance, has a weak level of risk-adjusted capital, and its limited product profile has led to volatile operating performance, A.M. Best said.
“From a holding company standpoint, management has been able to formulate adequate financial flexibility, given a limited ability to access the equity markets at this time,” A.M. Best said. “All ratings will remain under review pending the outcome of China Oceanwide’s attempted acquisition of Genworth. However, A.M. Best is revising the implications to developing from negative as management continues to take positive actions at the holding company level in addressing upcoming maturities and accumulating holding company liquidity.”
— Read Genworth Says Higher LTCI Rates Beat Liquidation on ThinkAdvisor.