Genworth Repays Outstanding Debt - Analyst Blog

Genworth Financial (GNW) repaid the outstanding borrowings under its five-year revolving credit facilities. The outstanding amount of $480 million constituted $240 million of outstanding borrowings under each of the two facilities.

The company repaid the debt from the proceeds from sale of senior notes offered by the company on November 17 along with cash in hand. The 10-year senior notes worth $400 million carried a coupon of 7.20%.

A.M. Best Co.assigned “bbb” rating to the senior unsecured notes. The rating agency has also assigned a negative outlook. The rating agency did not change its ratings on domestic life/health insurance companies and existing debt securities of Genworth.

The rating agency has also assigned debt ratings of “a-” to the newly issued senior unsecured notes of  Prudential Financial Inc. (PRU), a major competitor of Genworth Financial. Prudential plans to issue $1 billion in debt comprising $500 million of 4.50% 10-year notes and $500 million 6.230% 30-year notes.

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

Thus, with payments totaling $730 million of outstanding borrowings under the five-year revolving credit facilities, the company lowered the debt-to-capital ratio by 280 basis points. Genworth Financial ended the third quarter with borrowings of $5.1 billion. 

With repayment of the outstanding borrowings, the company will also scale down its interest expense, which increased 19% over the prior-year quarter.

Genworth's third-quarter 2010 operating earnings lagged the Zacks Consensus Estimate as well as the year-ago figure. Higher year-over-year loss at the U.S. Mortgage Insurance segment as well as weak results at Retirement and Protection and at International resulted in the company's soft performance.

The Zacks Consensus Estimate for fourth-quarter 2010 is 18 cents per share. For full years 2010 and 2011, the Zacks Consensus Estimates are, respectively, 74 cents and $1.34.

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.

 
GENWORTH FINL (GNW): Free Stock Analysis Report
 
PRUDENTIAL FINL (PRU): Free Stock Analysis Report
 
Zacks Investment Research