A recent letter to Virginia regulators offers additional detail on certain regulatory and financial implications of the latest delay in China Oceanwide Holdings Group Co. Ltd.'s long-pending plan to acquire Genworth Financial Inc.
Ahead of the third anniversary of the deal's announcement, Genworth expressed confidence in the letter addressed to the State Corporation Commission about its ability to meet near-term debt maturities even though the timing of Oceanwide's commitment to provide $1.5 billion in capital has been pushed back. The company also discussed the specific jurisdictions in which it may need to secure new approvals for the deal either as a result of the delayed closing or the recent agreement to sell a controlling stake in Genworth MI Canada Inc. to an affiliate of Brookfield Asset Management Inc.
The parties agreed in 2018 on a plan for Oceanwide to contribute capital to Genworth "over time" after the transaction closed to bolster the insurer's financial stability through the potential retirement of debt due in 2020 and 2021. The agreement called on Oceanwide to complete the contribution by March 31, 2020.
Genworth President and CEO Thomas McInerney revealed during a May 1 conference call that Oceanwide had originally been scheduled to make the first tranche of the capital contribution by March 31 of this year. But amid ongoing delays in the receipt of necessary regulatory approvals for the closing of the merger, McInerney said it was the parties' intent to adjust the payment schedule. That adjustment would be made, he added, "recognizing the importance of funding the ... commitment comfortably ahead of the debt maturities in 2020 and 2021."
There were $397 million in 7.70% senior notes due 2020, $381 million in 7.20% senior notes due 2021 and $703 million in 7.625% senior notes due 2021 at the Genworth Holdings Inc. level as of June 30, according to the company's most recent Form 10-Q.
After Genworth and Oceanwide again agreed to extend the merger agreement to facilitate the marketing process for the Canadian mortgage insurance business, McInerney said during a July 31 call that the two sides "continue to discuss the timing of the ... capital plan" and remained "very mindful" of the forthcoming maturities.
Following the announced sale of the Canadian business two weeks later, Genworth disclosed that Brookfield committed to provide bridge financing of up to $850 million in the event approvals for that transaction had not been received by Oct. 31. Borrowings taken under the credit facility would bear interest at the 450 basis points over the London Interbank Offered Rate. They would be secured by a pledge of Genworth's 34.8 million common shares in Genworth MI Canada and draw-downs could be used to repay amounts outstanding under an existing credit facility and/or the maturing 7.70% notes.
Oceanwide consented to the Brookfield transaction and agreed to another extension of the Genworth deal through year-end 2019.
Given the revised timeline, the Virginia letter states that the parties expect the capital contributions from Oceanwide to be "extended commensurate with the delay" in the deal's closing. But, it emphasized, the nature and amount of those contributions remain unchanged.
The parties currently anticipate that Oceanwide will make the payments in three equal installments on or before March 31, 2020; Sept. 30, 2020; and March 31, 2021, assuming the deal closes no later than the end of this year.
Genworth now plans to retire the 7.70% notes due 2020 with a portion of its proceeds from the Canadian mortgage insurance deal. Remaining proceeds from that transaction will go towards the repayment of a $450 million secured term loan and the retirement of a $200 million intercompany note payable to Genworth Life Insurance Co. on March 31, 2020.
The capital contributions and the proceeds of the Genworth MI deal should allow Genworth to take care of its 2021 debt maturities, the company said.
Genworth reiterated in the letter that the Oceanwide deal remained subject to currency conversion clearance by an agency of the Chinese government. The letter also indicated that the parties may need to re-secure several approvals that are set to expire or have expired already.
Among those include the pending Nov. 30 expiration of a previous approval by the Royal Bank of New Zealand, the Dec. 16 expiration of an approval from the North Carolina Department of Insurance and the early termination of the waiting period under the Hart-Scott-Rodino Act. Approval of the transaction by the New York State Department of Financial Services already expired on March 14.
When asked during the July call about the impact of the potential Canadian stake sale on the regulatory approval process for the Oceanwide deal, McInerney said that the company would have to review such a transaction with the relevant parties.
"I don't foresee significant issues with any of them," he added.
Genworth declined to comment on the Virginia letter.