Genworth prices $750M debt offering to enhance liquidity

Genworth Mortgage Holdings has followed through on the previously contemplated debt issuance to help provide liquidity.

The company priced and completed $750 million of senior notes due in 2025 for a yield of 6.5%. Genworth Mortgage Holdings will retain $300 million of the proceeds, with the rest upstreamed to its immediate parent company, Genworth Holdings.

The funds going to Genworth Holdings will be used to repay or reduce upcoming debt maturities in order to comply with the terms of the legal settlement with AXA.

Genworth Financial — the ultimate parent of Genworth Mortgage Holdings — has $355 million of debt maturing next February and $660 million maturing in September 2021.

Fitch Ratings has assigned a BBB- insurer financial strength rating to the company's U.S. mortgage insurance unit and a BB issuer default rating to Genworth Mortgage Holdings. It gave the debt offering a BB- rating.

In its report, Fitch pointed out Genworth Financial has a significantly weaker credit profile than Genworth Mortgage Holdings. That business "is currently the primary source of liquidity to meet Genworth Financial's debt service and other funding needs.

"This risk is partially mitigated by covenants in the senior note indenture that limit Genworth Mortgage Holdings' ability to incur additional debt, pay dividends or sell assets. Fitch views Genworth Financial's ownership as unfavorable to the rating," which is why the mortgage insurance unit's rating is BBB-.

Fitch gave the mortgage insurer a stable outlook rating because of the potential IPO, which if it happened, would make parent company Genworth Financial less of a drag on its own financials and outweigh any negatives from the business from the coronavirus.

Genworth Financial has raised the prospect of an initial public offering for 19.9% of the U.S. mortgage insurer if its deal with China Oceanwide were to be terminated. In the latest extension of the deal's deadline, both companies have the option, based on certain conditions, to walk away from the transaction on Aug. 31.

In the second quarter, Genworth had the most new insurance written among the six active underwriters, at $28.4 billion, just ahead of MGIC and Essent, which were in the area of $28.2 billion.

Even though Fitch noted that Genworth's capital cushion under the Private Mortgage Insurer Eligibility Requirements maybe be difficult to maintain due to a potential increase in delinquencies, it "currently expects the coronavirus pandemic to have a relatively modest effect on [the mortgage insurance business'] earnings and cash flow over the next two years."

The notes are being sold in a private offering and are not guaranteed by Genworth Financial.