Genworth Rallies After Bondholders Avoid `Devastating Risk'

  • Credit-default swaps narrow as debtholders support CEO's plan
  • Approval could pave the way for more flexible restructuring

Genworth Financial Inc. shares gained after bondholders agreed to changes sought by Chief Executive Officer Tom McInerney as he reshapes the insurer and seeks to rebound from losses on long-term care coverage.

Genworth climbed 7.6 percent to $3.26 a share at 4:01 p.m. in New York. The Richmond, Virginia-based insurer announced the bondholder approval in a statement Monday.

McInerney has been seeking to divest assets and simplify the company after reporting reserve shortfalls tied to long-term care coverage, which pays for home-health aides and nursing home stays. He announced last month that Genworth would stop issuing new life insurance and fixed-annuity products. The bondholder approval could make it easier to avoid a default designation as the CEO works sell assets while isolating the remaining holdings from the LTC business that had to shore up capital to meet regulatory standards.

“Genworth has taken a potentially devastating risk off the table,” David Havens, a debt analyst at Imperial Capital, wrote in a note. “This should pave the way for more flexible restructuring and more efficient cash flow to the holding company, while removing a significant credit-event overhang.”

Credit Swaps

The cost to protect against default on Genworth debt fell 79 basis points to about 851 basis points at 3:41 p.m. in New York, according to data provider CMA, which is owned by McGraw Hill Financial Inc. and compiles prices quoted by dealers in the privately negotiated market.

McInerney struck a deal last year to sell a European lifestyle protection unit, which helped him raise funds to redeem debt maturing in 2016. The insurer could turn to more divestitures to pay down the $600 million of debt maturing in 2018 if bond market turmoil shuts out borrowers, he said last month.

“In the current environment, it would be very difficult for us to refinance the 2018 maturities, given the concerns with oil and gas and commodities” in the bond market, McInerney said in a Feb. 5 interview. “The good news is we have the luxury of time on our side for that to turn and, if not, we do have four or five avenues from an asset-sale perspective to meet that principal payment.”

The stock is still down about 13 percent this year, after falling by more than half in 2015. McInerney’s company will pay about $65 million in fees tied to the consent solicitation, according to Monday’s statement.

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