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Analysts still fret over Genworth's ability to pay debt as Oceanwide deal dies


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Analysts still fret over Genworth's ability to pay debt as Oceanwide deal dies

Some industry analysts are concerned that Genworth Financial Inc. may not be able to meet intermediate-term debt maturities despite the company's assertion that terminating the long-pending merger with China Oceanwide Holdings Ltd. frees it up to pursue capital-generating alternatives.

After 17 deal extensions over the past four years, Genworth on April 6 announced the deal's cancellation. The company in a statement said terminating the deal allows it to pursue its contingency plan "without restrictions."

Julie Westermann, a spokesperson for Genworth, said in an email that the company will continue to execute its revised strategy, which includes working toward the potential partial IPO of its U.S. mortgage insurance business, as well as its long-term care multi-rate action plan.

"We will continue to take steps to improve our financial position, reduce debt and maximize value for shareholders," Westermann said.

Genworth in 2021 faces debt maturities totaling more than $1 billion; the company previously indicated it would use about $340 million of its holding company cash and liquid assets to make payments in February. The next repayment will be due in September.

The insurer will also have to meet other financial obligations in the coming years, including a promissory note due in 2022 related to a dispute settlement with AXA SA, as well as $400 million of maturing senior debt in each of 2023 and 2024.

CreditSights analyst Josh Esterov said the company has "built itself a nice pathway" for meeting its 2021 debt obligations through the combination of the 2019 sale of its Canadian mortgage insurance business and the recent sale of its entire stake in its Australian mortgage insurance subsidiary.

That said, Esterov believes Genworth "clearly" does not have sufficient capital to deal with its obligations for 2022 through 2024. A successful partial IPO of the U.S. mortgage insurance business should allow Genworth to get through 2022 and 2023, he added.

Bob Garofalo, vice president and senior credit officer at Moody's, in an interview said he is "definitely concerned" about Genworth's ability to meet its pending debt obligations, particularly in light of the limited dividends that are expected from the operating companies.

"At this point, there's really no expectation that there will be dividends coming from the life companies or the MI companies," Garofalo said. "They really need to look for transactional or additional means to raise liquidity for the holding company so that's why you're seeing them shed assets."

CFRA analyst Cathy Seifert characterized Genworth's financial situation as "less than ideal," and said her sense is that "job one" is to free up capital, improve liquidity and make payments in a timely fashion.

Seifert also pointed out that Genworth could face potential litigation for failing to close the Oceanwide deal, especially given that management had signaled optimism around deal progress and funding in late 2020.

Genworth's ability to remain a "relevant player" over the long term will be based on the strength of its mortgage insurance business, Esterov said.

"If the housing market remains strong, Genworth should be alright," Esterov said, but there could be trouble if another economic crisis hits and leads to declining home values or an uptick in mortgage delinquencies.

Genworth recently reported a net aggregate statutory reserve increase of $964.0 million, the biggest increase among the 15 largest life insurance underwriters of long-term care business.

Seifert said she believed the market did not have "high hopes" that the Oceanwide deal would come to fruition, and she was not "overly surprised" that Genworth's shares did not "totally tank" on the termination news. The stock dropped 3.70% on April 7 to close at $3.38.

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