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The move is intended to ease the insurer's long-term liquidity concerns through 2011, when it will see $694 million of notes and preferred stock mature. The company borrowed $465 million each against two five-year credit agreements, one initiated in August 2007 and due in August 2012, and the other initiated in May 2006 and extended until May 2012. Genworth had $1.7 billion in available liquidity under the two revolving credit facilities.
The borrowed funds initially will bear interest at JPMorgan Chase Bank's prime rate, but the company said it intends to move shortly convert the interest rate to one based on the London interbank offer rate.
"Accessing the credit facility to position us in retiring our 2009 debt maturities is an important step to navigate today's difficult capital market conditions," said Michael D. Fraizer, Genworth chairman and chief executive officer, in a statement. "Genworth remains focused on enhancing capital flexibility through reinsurance and other strategic actions and positioning the company effectively while we serve our policyholders and distributors every day."
A.M. Best Co. cited the potential for higher capital costs related to the 2009 expiration of Genworth's maturing debt when it moved Nov. 6 to place the A+ (Superior) financial strength rating of Genworth's key life/health insurance subsidiaries under review with negative implications (BestWire, Nov. 6, 2008). A.M. Best said it expected the entities' statutory capital to "be further pressured by material investment impairments during the second half of the year" and said the holding company's financial flexibility could be "being limited by the decline in value of its common stock, continued dislocation in the capital markets and the uncertainty surrounding its U.S. mortgage operations."
In a 10-Q filing earlier this week with the U.S. Securities and Exchange Commission, Genworth said it would be excluded from participating in the Federal Reserve's Commercial Paper Funding Facility due to recent credit rating agency downgrades of its holding company (BestWire, Nov. 11, 2008). The company also noted that stresses in the credit markets made it difficult for the company to issue commercial paper during the third quarter.
Genworth recorded a $258 million net loss in the third quarter, largely due to $321 million of credit and/or cash-flow related impairments, as well as $55 million of impairments related to a change of intent to hold securities to maturity, and $86 million of realized losses on portfolio-repositioning asset sales. Of its after-tax impairments, $153 million were related to subprime and Alt-A residential mortgage and asset-backed securities, while $145 million were in corporate bonds by several large financial services firms.
Following the quarter, the company said it was suspending the dividend on its common stock, formally suspending its share repurchase program and contributing $500 million in cash to life insurance operating companies from the holding company, bringing their risk-based capital levels to roughly 360%. The operating units now hold about $6.2 billion in cash and cash equivalents. Following the infusion, Genworth retained about $435 million of cash at the holding company level.
Genworth also noted it completed $750 million of reinsurance and capital efficiency projects during the third quarter, and an additional $115 million of such projects thus far in the fourth quarter. It has targeted an additional $500 million of reinsurance and other capital projects to be completed by year's end.
(By R.J. Lehmann, Washington bureau manager: raymond.lehmann@ambest.com)
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