The sheer volume of documents recently filed by Genworth Financial Inc. and China Oceanwide Holdings Group Co. Ltd. to obtain just one of the multiple necessary regulatory approvals for their long-pending merger might in and of itself help ameliorate any concerns about the companies' continued commitment to one another.
The 1,300-plus-page amended Form A for a change in control of Genworth Life & Annuity Insurance Co. and Jamestown Life Insurance Co. as filed June 1 with the Virginia Bureau of Insurance memorializes and provides additional details about several of the previously disclosed changes to the parties' proposed deal structure. That page count, which largely consists of attachments of previously disseminated filings, excludes three years of financial projections that have been deemed confidential.
The amended filing confirms the parties' decision to forgo the "unstacking" of Genworth Life & Annuity from immediate parent Genworth Life Insurance Co., China Oceanwide's intent to contribute up to an aggregate $1.50 billion to Genworth over an unspecified period of time subsequent to the deal's completion, and key elements of a plan they have developed in connection with the ongoing review of the transaction by the Committee on Foreign Investment in the United States, or CFIUS.
The parties submitted the initial Form A with the Virginia Bureau of Insurance on Dec. 8, 2016, and that regulator approved the filing on Sept. 14, 2017.
Delaware remains the key state from which Genworth requires regulatory approval, and it was the driver of the parties' decision to abandon the unstacking initiative. The state's department of insurance recently disclosed its receipt of a similar amended Form A pertaining to the Delaware-domiciled Genworth Life.
Genworth President and CEO Thomas McInerney said during an April conference call that the company was unsuccessful in reaching an agreement with the Delaware regulator regarding a fair market value for the unstacking transaction, even after discussing multiple valuation methodologies. He said Oceanwide had committed to contribute $525 million of capital to Genworth for the unstacking upon the deal's completion, in addition to the $600 million that company had pledged to put toward the retirement of Genworth's 6.52% senior unsecured notes due May 22.
An Oceanwide affiliate alternatively served as the lead investor on a $450 million secured term loan from which Genworth used proceeds along with cash on hand to repay the maturing debt. It will not make the $525 million in the absence of the unstacking, but instead agreed to work with Genworth to develop the $1.50 billion capital investment plan.
The unstacking had been intended to provide an additional dividend stream for the parent company, further isolate the long-term care business from other operations and protect the ratings of Genworth's mortgage insurance business.
The parties expect the primary use of the capital improvement plan funds to be the repayment of $1.50 billion in debt obligations due in 2020 and 2021. But both McInerney and the amended Form A held open the possibility of other uses, such improving the company's financial flexibility or pursuing future growth opportunities. Not contemplated is the use of those funds to support Genworth's legacy long-term care operations, as Oceanwide has maintained that it has no current intention or future obligation to provide additional capital to that business.
The amended filing further indicates that Genworth expects that any new life, annuity and long-term care business would written in Genworth Insurance Co., a North Carolina-domiciled company acquired in 2017.
Before any of that can occur, however, CFIUS must complete its review of the transaction. Genworth disclosed on April 24 that the parties re-filed a joint voluntary notice to provide CFIUS additional time to review and discuss the deal.
McInerney said in April that the re-filing allows the parties to continue what he described "productive conversations" with CFIUS regarding a risk-mitigation proposal to safeguard policyholders' personal data. According to the amended Form A, the plan would include the use of an independent service provider to manage Genworth's U.S. data center facilities and related information technology infrastructure. It also would result in the modification of the composition of Genworth's post-closing board.
Instead of a nine-to-11-member board comprised of four directors affiliated with Oceanwide, four independent U.S. directors and McInerney as originally contemplated, the plan proposes a nine-member board with three directors linked to Oceanwide, two CFIUS-approved independent U.S. directors from Genworth's existing board, McInerney, and three independent U.S. directors approved by CFIUS, chosen specifically for their national security expertise.
"We would hope that we will reach a conclusion by the end of this review period," McInerney said of the CFIUS process.
That is a critical step, but not the only one, remaining before the closely watched transaction can close.
