Genworth Credit Swaps Plunge on Plan to Separate Mortgage Unit

The cost of protecting Genworth Financial Inc. (GNW)’s debt from losses plunged after the insurer said it’s reorganizing to distance the mortgage guaranty unit from the rest of the company.

Five-year credit-default swaps on the Richmond, Virginia- based company’s debt dropped 87.5 basis points to 261 basis points as of 4:30 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market.

Tom McInerney, who became chief executive officer this month, is seeking to revamp the insurer after losses from the mortgage unit drained capital and threatened the firm’s investment-grade credit rating. The Richmond, Virginia-based company also sells life insurance and long-term care coverage. Genworth said today it will create a new parent and the outstanding senior and subordinated notes will remain obligations of the old one.

A benchmark credit-default swaps index in the U.S. was little changed. The Markit CDX North American Investment Grade Index, which investors use to hedge against losses or to speculate on creditworthiness, increased 0.1 basis point to a mid-price of 88.7 basis points, according to prices compiled by Bloomberg. The index has climbed from 84.9 on Jan. 7, the least since Sept. 14.

The measure typically rises as investor confidence deteriorates and falls as it improves. The contracts pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.

To contact the reporter on this story: Madhura Karnik in New York at mkarnik@bloomberg.net

To contact the editor responsible for this story: Alan Goldstein at agoldstein5@bloomberg.net

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