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Chinese Owned Genworth Financial Suspends IPO for Private Mortgage Insurer Enact Holdings

October 2016: Genworth agreed to be acquired by China Oceanwide Holdings Group Ltd., a private financial holding company based in Beijing.

Genworth Falls After Delaying Mortgage IPO on Volatility

MAY 13, 2021 | REPUBLISHED BY LIT: MAY 14, 2021

Genworth Financial Inc. shares declined after the company postponed a planned initial public offering for its Enact Holdings Inc. unit, citing volatility in the mortgage-insurance market.

The IPO, which was expected to raise as much as $623 million, would have been this week’s largest U.S. initial offering. Genworth dropped as much as 5.2% in New York before rebounding to $3.86 at 1:08 p.m., a 0.3% increase.

The decision to put the sale on hold follows last month’s collapse of a takeover agreement Genworth had reached with China Oceanwide Holdings Group Co. Taking the mortgage-insurance business public was initially floated as part of a plan to help pay near-term debt as progress on the merger dragged on for more than four years.

“Genworth does ultimately need the cash,”

Jeffrey Flynn, an analyst with Bloomberg Intelligence, said in an email.

“So there is some pressure on them to get it done.”

But Flynn said the company’s cash position is “workable,” and a delay might ultimately help if an improving housing market boosts second-quarter results at Enact.

Genworth’s ability to meet its obligations isn’t dependent on the IPO, the company said Thursday in a statement. The Richmond, Virginia-based firm said it had about $757 million in cash and liquid assets as of March 31.

“In light of the recent significant trading volatility in the mortgage-insurance sector, Genworth’s board of directors determined that current market pricing for the planned offering does not accurately reflect Enact’s value,”

Chief Executive Officer Tom McInerney said in the statement.

“Therefore, we have decided to postpone the IPO and will continue to evaluate our options as market conditions develop.”

The delay followed other recent stumbles in the market. An IPO from the Fortegra Group was withdrawn hours before it was expected to start trading on April 29, with parent Tiptree Inc. also citing adverse market conditions.

On May 6, James River Group Holdings Ltd. priced a secondary offering at the sector’s steepest discount ever after adjusting its expected value of outstanding insurance claims.

The next day, Chinese insurance-tech firm Waterdrop Inc. tumbled almost 20% from its IPO price in its U.S. market debut.

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Genworth Financial’s planned merger with a China-based company now on indefinite hold; company pursuing contingency plan

JAN 4, 2021 | REPUBLISHED BY LIT: MAY 14, 2021

After more than four years, Genworth Financial Inc.’s plan to merge with a China-based company has been put on indefinite hold, in part because of the COVID-19 pandemic, though both companies said Monday that they still may be able to complete a deal.

In the meantime, Henrico County-based Genworth, an insurance company with thousands of employees in Virginia, said it is focusing on pursuing a contingency plan to pay its debts that could include a partial, initial public offering of stock for its U.S. mortgage insurance business.

Genworth and China Oceanwide Holdings Group Co. Ltd. said Monday that they have decided not to extend a deadline that had been set to expire Dec. 31 to complete the proposed acquisition of Genworth for $2.7 billion, or $5.43 per share.

Shares in Genworth plummeted nearly 29% in heavy trading to close Monday at $2.69 per share.

The deal was announced in October 2016 and was approved by Genworth’s shareholders the following March. Since then, the merger has been delayed 17 times as Genworth sought approvals from numerous state and federal insurance regulators.

Genworth sells home mortgage insurance that covers defaults on home loans as well as long-term care insurance, which covers nursing home and at-home care expenses.

The company has faced challenges in covering its costs for both businesses over the past 12 years, first because of the housing market collapse and then because of escalating expenses for long-term care.

All of Genworth’s regulatory approvals for the deal in the U.S. have been cleared, but China Oceanwide, which wants to expand Genworth’s long-term care insurance business to China, still needed to complete a financing package to close the deal.

A statement released by the companies on Monday indicated that China Oceanwide has not been able to complete a financing package. The company cited disruptions caused by the pandemic as one factor in failing to obtain the funding.

“However, the merger agreement remains in effect, although either party is able to terminate the merger agreement at any time,” Genworth said in a statement. “Oceanwide has shared that it will continue to work towards closing the transaction, and Genworth remains open to completing the transaction if Oceanwide completes the remaining steps.”

Genworth said its contingency plan includes raising capital to pay off about $1 billion in debt that the company owes this year. That could include a partial IPO for its U.S. mortgage insurance business.

“While we are disappointed that we could not close the transaction by the end of 2020, the parties retain the ability to ultimately complete the transaction if Oceanwide can secure the required funding and the parties can complete the remaining steps to closing, and if the transaction is still in the best interests of Genworth at that time,” said Thomas J. McInerney, Genworth’s president and CEO, in a statement.

“At the same time, we are moving forward with our contingency plan to meet our near-term obligations and maximize long-term value, which we believe is the best approach for our shareholders,” McInerney said.

Genworth’s stock price dropped 28.84%, or $1.09, to $2.69 per share on the news that the deal is uncertain. Two analysts who cover the company said Monday that they now value the stock at $1.50 to $3 a share.

“If the driving factor delaying the transaction is COVID-19, it is possible that a deal can be completed at some point as vaccinations become more widespread and the pandemic subsides,” analyst Ryan Gilbert of BTIG Capital said in a note to investors. “We see a lower probability of merger completion if financing is the primary reason for the delay.”

Lu Zhiqiang, the chairman of Oceanwide, said in a statement that his company is continuing to work toward completing the transaction with Genworth.

The two companies had most recently agreed in late November to extend the deadline for the merger to the end of the year.

James Riepe, Genworth’s nonexecutive chairman, said Monday that Genworth’s board of directors believed — based on the information available in late November — that the company could close the deal in the near term.

But the board doesn’t believe that is the case now.

“Given the most recent update, we do not believe a closing can occur in the near term,” Riepe said. “Thus, the management team will fully focus its efforts on executing our contingency plan.

“We appreciate the continuing patience of our shareholders, employees and other stakeholders as we continue to pursue steps that will maximize Genworth’s value.”

Chinese Owned Genworth Financial Suspends IPO for Private Mortgage Insurer Enact Holdings
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