Interesting Statements regarding Australia CEO: We do have...

Interesting Statements regarding Australia

CEO: We do have potential cash flow next year from GMA and from U.S. MI in terms of dividends or other options with either of those.

CFO: And what I would say is between dividend cash flows from U.S. MI, and we always have Australia, which we set as a financial asset for some time.

Prepared statement on US LMI IPO

CEO

We remain focused on preparing for a potential partial IPO of U.S. MI, subject to market conditions as well as the satisfaction of various conditions and approvals.

While we are not permitted to discuss details associated with this transaction due to applicable gun-jumping and related securities laws, I can tell you that we began our preparations for the IPO over a year ago as part of our contingency planning.

Since we announced the indefinite delay of the Oceanwide transaction on January 4, and our intent to pursue a partial U.S. MI IPO, we have received multiple expressions of interest from third parties and various transactions involving our U.S. MI business, including a sale of 100% of U.S. MI.

Q&A on US LMI IPO

Analyst

As you weigh a potential partial IPO of U.S. MI versus a full sale of the company, can you discuss what some of the key considerations would be in terms of making that decision?

CEO

I think the baseline is whichever provides the best long-term shareholder value. And that’s based obviously on the price on a full sale versus what we think the execution is on the IPO.

One of the – the core plan is the – a partial IPO that preserves the ability for a tax-free spin-off of U.S. MI shares to general shareholders in the future. So that’s an important criteria that we are considering the partial IPO versus the full sale.

Analyst

If you did do a full sale, how to think about the tax consequences that might emerge from that, as you separate MI from the rest of the company?

CEO

I think the main thing is you lose some tax consolidation. There wouldn’t be, I think, a taxable gain.

CFO

In the case of the full sale, there wouldn’t be meaningful tax considerations for us. We’ve got a fairly high basis in U.S. MI. The real issue is going to be making sure that going forward, we’re comfortable with what to do with the proceeds of the sale and the tax position that we would be in sort of post-sale, but the tax – a full sale of U.S. MI is relatively straightforward from tax perspective.

Q&A on Debt and Other Obligations

Analyst

I think at this point, you’ve set yourself up pretty well with a clear runway towards addressing the 2021 debt obligations, assuming a successful IPO of U.S. Mortgage Insurance.

But I’m curious to hear about your strategy for dealing with some of the obligations, let’s say, over 2022 through 2024 with that time frame.

You’ve got the AXA litigation settlement payment, a couple of debt maturities to plan for. And I don’t think existing liquidity plus a partial IPO would be sufficient.

So any thoughts on how you plan to approach that would be helpful?

CEO

Well, certainly, I think we are in good shape on the 2021. In terms of the AXA amounts, they are not due until 2022 and there are significant other sources of cash.

We do have potential cash flow next year from GMA and from U.S. MI in terms of dividends or other options with either of those.

So I think we’re feeling reasonably good about our ability to handle all of the obligations through the end of ‘24.

And then the remaining debt was about $900 million, $300 million is due in 2034 and then the balance, about $600 million due in 2066. So we feel we are in pretty good shape.

CFO

So for 2021, we ended the year with $1.1 billion of cash, which is sufficient to pay off both the February, which was paid off this week, as well as the September.

And the IPO is going to help us rebuild the buffer, but also give us the proceeds to pay off the AXA liabilities in 2022.

And what I would say is between dividend cash flows from U.S. MI, and we always have Australia, which we set as a financial asset for some time.

And with liquid asset in U.S. MI with public shares, to the extent that we needed to, we could use any potential sell down to take care of liabilities in ‘23, ‘24.

My guess – and assuming COVID lessens in the second half of the year and we return to more of a normal economy, the cash flows of U.S. MI, which has been a very strong business for a number of years, would allow us to payoff the ‘23’s and ‘24’s between dividends and cash on hand.

Prepared statement on China Oceanwide

CEO

I want to provide a brief update on where things stand with Oceanwide. The merger agreement with Oceanwide remains in effect. Oceanwide has informed us it is continuing to work towards obtaining the financings to close the transaction.

But based on our recent conversations, we do not believe the funding issues will be resolved in the near term, if at all.

While Genworth remains open to completing the transaction, our primary focus has shifted to our contingency plan in the U.S. MI IPO.

If there is no transaction, it is possible that Oceanwide and Genworth could, in the future, agree to pursue a long-term care insurance focused joint venture in China, given the excellent long-term growth opportunities for elder care in China and the strong relationship we have established with Oceanwide.

Genworth is in a much stronger financial position now than it was 4 years ago when we first announced the merger. We have taken several strategic actions to enhance holding company liquidity, reduce debt, further isolate U.S. MI from the U.S. Life companies and significantly reduce the capital risk associated with our legacy LTC insurance blocks.

Genworth has also delivered solid operating performance over the last several years led by strong results in U.S. MI, which grew adjusted operating income at a 27% compound annual growth rate from 2014 to 2020, which is among the fastest growth rates in the mortgage insurance industry.

In addition, we have significantly improved our balance sheet flexibility over the last few years by refinancing our debt and receiving two consents from bondholders that further isolated our life and long-term care insurance companies from U.S. MI.

Q&A on China Oceanwide

Analyst

Regarding the potential Oceanwide transaction, is there anything you’ve learned since the January 5 call that – I guess, just anything incremental on Oceanwide’s ability to source funding to complete the transaction?

Because I think the market is reacting to your commentary around Oceanwide maybe not being able to source the funding at all.

So just any incremental information you’ve learned since January that might have changed your view around the transaction?

CEO

Well, look, the Oceanwide merger agreement is still in effect.

I said in my comments, I believe Oceanwide continues to work on the financing, particularly the financing outside of China with Hony Capital.

I think there are ongoing challenges in the geopolitical landscape that are out of Oceanwide and Genworth’s control in terms of the relationship between China and the U.S.

I think they still want to do the transaction. We still think that transaction, as we’ve said for some time, we think is the best option for shareholders if it could be achieved. But just given where we are, and time has passed since the end of the year, I have regular conversations all the time with Oceanwide. So we are still working with them to help in any way we can on the financing.

But I think we are where we are. And based on the conversations that I’ve had with the Chairman and with his senior team, it does appear that it would be difficult for them to raise the financing in the near-term, if at all. But we’re still open to that. And I think they still are very focused on trying to get the financing in place.


NB: The preceeding was sourced from a transcript published by seekingalpha.com, not the company itself. Some minor alterations have been made to improve relevance.