The recently issued $400 million 7.625% senior unsecured notes due 2021 of Genworth Financial Inc. (GNW) was assigned a debt rating of “bbb” by A.M. Best Co. The outlook is negative.
Genworth plans to utilize a part of the net proceeds from the offering to retire debts maturing in 2011. The rating agency believes that the new issuance will not have much impact on Genworth’s debt-to-capital and interest coverage ratios as the company maintains surplus capital at the holding company level for providing added coverage cushion.
Also, Genworth continues with its strategy of raising capital well in advance of securities maturing in order to obviate the pressure of accessing the capital market at unfavorable times.
Genworth ended 2010 with a total debt balance of $4.95 billion, compared to $4.57 billion at the end of 2009, reflecting an increase of 8%. However, the debt-to-capital ratio was 26% at 2010 end, a 100-basis point year over year reduction. Genworth expects to lower its financial leverage over the next two years.
We expect the elevated unemployment rate to continue pressuring the mortgage insurance business. Though the business is showing signs of improvement, the line is still experiencing losses. Additionally, the improvements in its other business lines are expected to be slow given the economy’s sluggish recovery.
We maintain our Underperform recommendation on Genworth. The quantitative Zacks #5 Rank (short-term Strong Sell rating) for the company indicates downward pressure on the shares over the near term.
Based in Richmond, Virginia, Genworth Financial offers a variety of products to customers in areas such as life insurance and lifestyle protection, long-term care insurance, annuities, asset management and mortgage insurance through financial intermediaries, advisors, independent distributors and sales specialists. It competes with MetLife Inc. (MET) and Prudential Financial, Inc. (PRU).
GENWORTH FINL (GNW): Free Stock Analysis Report
METLIFE INC (MET): Free Stock Analysis Report
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
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