Genworth Holdings, Inc., a subsidiary of Genworth Financial, Inc. (GNW), announced the offering of 4.9% $400 million 10 year senior notes.
The net proceeds along with Genworth Holdings’ cash balance will be deployed to redeem most of the 4.95% senior notes due 2015, pay premium and accrued interest on such notes. The remainder, if any, will be utilized for general corporate purposes that may include the redemption or repurchase of debt, including additional senior notes due 2015.
It is a prudent strategy undertaken by the company to issue notes of lower coupon rates and redeem them with higher coupon rates, thereby trying to lower interest burden. This will likely enhance the profitability of Genworth.
Furthermore, A.M. Best Co. assigned a debt rating of “bbb” with a stable outlook to these notes. The rating agency expects leverage to marginally increase with the new issuance. A.M. Best also affirmed the financial strength rating, issuer credit rating and debt ratings of Genworth, Genworth Holdings and its domestic life/health subsidiaries.
The ratings account for continuously improving operational results, better financial flexibility, solid investment portfolio, sturdy risk-adjusted capitalization and a diversified business portfolio. Genworth remains focused to improve its capital position, de-risk its products and investment portfolios, and execute pricing actions.
However, considerable long-term care business, exposure to interest-sensitive liabilities and heightened competition faced by its core life and fixed annuity products partially dwarf the positives. Furthermore, the persistently underperforming domestic mortgage insurance business will likely have an adverse effect of the company’s results, going forward. According to A.M. Best, despite management’s focus on improving the long-term care business margin, performance continues to underperform.
As per the rating agency, pricing implementation, which had hindered premium growth in 2012, shall continue to do so in 2013 as well.
Rating affirmations or upgrades from credit rating agencies play an important part in retaining investor confidence on the stock as well as maintaining credit worthiness in the market. Rating downgrades, therefore, adversely affect the business, apart from increasing the costs of future debt issuances. We believe that strong ratings will help Genworth retain investor confidence and help it write more businesses going forward, thereby boosting results.
Genworth reported its second-quarter 2013 net operating income of 27 cents per share on Jul 30. The results fell short of the Zacks Consensus Estimate of 29 cents but were much above the year-ago level of 14 cents. During the reported quarter, Global Mortgage Insurance put up a robust performance, long-term care insurance witnessed progress on rate actions and the company garnered benefits from the expense reduction initiatives.
Genworth presently carries a Zacks Rank #3 (Hold). Life insurers, Lincoln National Corporation (LNC), StanCorp Financial Group Inc. (SFG) and Health Insurance Innovations, Inc. (HIIQ) are worth taking a look. These carry Zacks rank #2 (Buy).
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