Genworth Financial Issues Notes - Analyst Blog

Genworth Financial Inc. (GNW) sold senior notes worth $400 million, bearing a coupon of 7.20% and maturing on February 15, 2021. The company increased the offer size from $300 million planned earlier.

The company has offered these notes at 99.659% of face value to yield 7.25% if held till maturity.

Rating agency Moody's Investor Service of Moody's Corp. (MCO) has assigned a “Baa3” rating to the notes while another rating agency Standard & Poor's Ratings Services (S&P) has issued a “BBB-” rating for the same.

Earlier, in June, Genworth Financial had issued 10-year 7.7% senior unsecured notes worth $400 million.

Genworth Financial would deploy the sales proceeds along with cash in hand to repay in full the outstanding borrowings under its two five-year revolving credit facilities. Genworth has $480 millionof borrowings outstanding under these facilities, $240 million under each of the two facilities expiring in May and August of 2012.

Genworth Financial had repaid $250 million of outstanding borrowings under these five-year revolving credit facilities in November 8. The company made twin payments of $125 million under the facility.

Genworth Financial ended the third quarter of 2010 with long-term borrowings of $4.4 billion, up 20% year over year. The debt-to-capital ratio was 25.4% at third quarter-end, lower than 26.4% at third quarter 2009-end. With the issuance of $400 million of debt, the debt-to-capital ratio will increase to 26.8%.

We also expect interest expenses to increase with the sale of new notes. The company incurred $114 million of interest expenses in the third quarter, a 19% hike over the prior-year quarter.

In November, Prudential Financial Inc. (PRU), a major competitor of the company, also announced it would issue $1 billion in debt. Prudential plans to sell $500 million of 10-year notes and $500 million of 30-year bonds.

We maintain a “Neutral” recommendation on Genworth Financial. The quantitative Zacks #4 Rank (short-term Sell rating) 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.

 
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