A.M. Best Co. has assigned a debt rating of “bbb” to the $400 million 4.90% 10-year senior unsecured notes recently issued by Genworth Holdings, Inc. (GHI). The notes are guaranteed by GHI’s parent holding company, Genworth Financial, Inc. (Genworth) [NYSE: GNW]. The assigned outlook is stable. The existing financial strength, issuer credit and debt ratings of Genworth, GHI and its domestic life/health insurance companies (all headquartered in Richmond, VA) are unchanged.
GHI intends to use the net proceeds from this issuance, together with cash on hand, to redeem at least a majority of the outstanding aggregate principal amount of its 4.95% senior notes, due 2015. The remainder, if any, will be utilized for general corporate purposes, which may include the redemption or repurchase of debt, including additional senior notes, due 2015. Although there may be a small increase in Genworth’s financial leverage ratio upon issuance, the pro forma impact on leverage is essentially neutral in the medium term given plans to call the 2015 maturing debt. Notes maturing in 2014 are expected to be funded with the proceeds from the sale of the wealth management business, which is anticipated to close in the third quarter of 2013, and cash on hand.
Genworth’s ratings reflect its improved profitability, enhanced financial flexibility, well-performing investment portfolio, focused yet diverse business profile and sound risk-adjusted capitalization. Genworth continues to improve its statutory capital position, de-risk both its product and investment portfolios and implement necessary pricing actions on both its inforce blocks and newly underwritten business. The life insurance segment complements Genworth’s domestic and international mortgage insurance businesses, providing excellent earnings diversification. Holding company liquidity remains good, and financial flexibility continues to improve. Moreover, Genworth’s financial leverage and interest coverage remain adequate for its current ratings.
Partially offsetting these positive rating factors are Genworth’s sizeable long-term care business, exposure to interest-sensitive liabilities and strong competition in its core life and fixed annuity products. Additionally, although the segment reported its second consecutive profitable quarter in the second quarter of 2013, the domestic mortgage insurance business continues to underperform and places a potential drag on the organization’s future profitability. Furthermore, management is taking appropriate action to enhance margins on its long-term care business; however, the product line’s results remain below A.M. Best’s expectations as some of the older blocks struggle to achieve profitability.
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