Genworth Takes First Restructuring Step, Reduces Stake in Australian Mortgage Unit

NEW YORK (The Deal) -- Genworth Financial's  (GNW) sale of part of its stake in its Australian mortgage insurance unit is the first of several expected moves as the life and mortgage insurer looks to reduce its debt and restructure its business.

Richmond, Va.-based Genworth will reduce its stake in Genworth Mortgage Insurance Australia Limited to 52% from 66%, raising some $225 million. The proceeds could be used either to help meet bolster the U.S. private mortgage insurance business or help fund $300 million in debt due in 2016, according to a report Monday from Jefferies analyst Colin Devine.

"The sale today represents an important step toward the execution of our strategic initiative to increase the financial flexibility and strength of Genworth. This transaction advances Genworth's ability to support compliance with the [Federal Housing Finance Agency's] Private Mortgage Insurer Eligibility Requirements and reduce debt levels," said Tom McInerney, president and CEO in a press release Monday.

Genworth has been trying to reduce its debt, possibly with an eye toward spinning off its U.S. mortgage insurance unit as a standalone entity. Hedge fund manager John Paulson had tried to push Genworth to spin out the unit last year, but management resisted and he sold his stake. Genworth management now says it is open to several possible moves to try and unlock value in its business, including the sale of individual business units and taking the company private.

Monday's announcement is the first of several steps expected over the next 12 months, including the sale of the remaining 52% Australian stake, Devine stated in his report. Genworth is also shopping its U.S. life and annuity business and a "lifestyle protection" unit principally based in Europe.

Goldman Sachs is advising on the life and annuity unit sales, according to a banker not involved in the deal. Bloomberg reported on Goldman's involvement last month. A Goldman Sachs spokesman declined comment.

Two insurance industry sources not directly involved in the potential transactions said logical buyers for the life insurance business would be Protective Life  (PL), Wilton Re and Reinsurance Group of America  (RGA). The annuity business might be of interest to Athene Holding, owned by private equity giant Apollo Global Management (APO). Calls to those companies were not returned. Barclays is advising on the lifestyle protection unit sale, Sky News reported, but that could not be confirmed. Barclays declined comment.

Other moves Devine expects over the next year include the separation and reserve strengthening of Genworth's troubled long-term care liabilities, the sale or discontinuation of all European mortgage insurance operations, the sale or transfer of its U.S. mortgage insurance business to a Canadian subsidiary and the retirement of more than $2 billion in debt.

"Once completed, the remaining company will be more finely focused on U.S./Canadian [mortgage insurance] and U.S. [long-term care] with significantly stronger balance sheet and capital position," Devine wrote on Monday. He rates Genworth a buy with a $12 price target.

Other Genworth watchers are not so sanguine. Macquarie analyst Sean Dargan, who downgraded Genworth last week, believes Genworth has limited flexibility do to its corporate structure and regulatory requirements that it meet the ever-growing liabilities in its long-term care business.

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