Genworth Financial (NYSE: GNW) says it will pursue asset sales, as the insurance provider faces continued losses, a volatile bond market and upcoming debt repayments. Genworth also plans to shut down two of its product lines and separate another, the company said during its fourth-quarter earnings call.
Richmond, Va.-based Genworth reported a net loss of $292 million for the fourth quarter of 2015, lower than the $760 million net loss reported for the same period in 2014. Its total net loss for the year was $625 million, about half the $1.2 billion hit reported for 2014.
Improvements aside, Genworth’s debt load includes several bond issues due to mature in the next two-to-five years--a total value of approximately $2.8 billion. Its repayment options may be limited, due to volatility in the capital markets.
“If we were to refinance today, given the state of the market, and our bond yield, which should significantly increase, it would likely be very difficult and very expensive,” CFO Kelly Groh said during a Feb. 5 earnings call.
Genworth’s debt has been recently trading at distressed levels—below 90 cents on the dollar--and has been steadily declining. On Dec. 4, investors bid 99.4 cents on the dollar for its 7.7 percent notes due 2020, according to financial information services firm Markit. This same bond received a bid of 67.5 cents on the dollar one day after its fourth quarter earnings were released – representing a 12 percent drop.
The company recognizes that it may have to seek alternatives outside of the capital markets to trim debt. “We are focused on reducing our debt and we have options to handle our future debt maturities including cash at the holding company, dividend flows, capital optimization and potential asset sales if we are unable to access the capital markets,” Groh said.
To facilitate reduction in debt, Genworth plans several internal restructuring actions in 2016, including suspending sales of traditional life insurance and fixed annuity products during the first quarter. The company reached the decision based on decreased sales for the offerings.
Under the restructuring effort, the company‘s long term care (LTC) insurance business will also be affected. Genworth intends to “isolate and separate” the business line, part of an overall effort to narrow the company’s commercial focus. The LTC business had a $19 million net operating for the final three months of the year, but had $10 million in losses during the third quarter and a net operating loss totaling $506 million in 4Q14.
In December, Genworth sold blocks of its term life insurance to Birmingham, Alabama-based Protective Life Corporation for $661 million. The transaction is expected to close during the early part of the first quarter.
Genworth’s plans to firm up financially have not been well received, triggering downgrades from Moody’s Investors Service. The holding company’s—Genworth Holdings—saw its senior unsecured debt bumped down two notches to Ba1 from Ba3. The rating agency said the action was “somewhat offset by the company’s recent announcement that it was exploring options to separate and isolate its underperforming LTC business.” Moody’s also cited the company’s debt load as playing a factor in the downgrade.
“Although Genworth has been successful with a number of transactions over the past year, and recently redeemed its 2016 debt maturity, the larger upcoming debt maturities—in 2018, and especially 2020 and 2021—weigh on our view of the company’s financial flexibility,” Moody’s senior vice president Scott Robinson said.
For the previous edition of Turnaround Talk, see, “Men's Wearhouse Devises Tailored Brands Holding Company to Protect Assets in Potential Bankruptcy”. For more struggling companies, check out Mergers & Acquisitions' Distressed Company Watch List.