Friday, November 14, 2008

Genworth Financial (NYSE:GNW): This is good news for GNW, Reit Buy, $16 tgt - UBS

UBS has some interesting positive comments on Genworth Financial (NYSE:GNW) after the co announced it borrowed $930M of its $1.7B available credit facilities to repay $1.1B of senior notes maturing in 2Q09—after which GNW has no long-term debt maturing until 2011. According to UBS, GNW may be able to purchase a significant amount of this debt in the open market at a discount to par. Liquidity also appears sufficient at life and mortgage insurance operating company levels.

Capital seems adequate for double-A S&P/AM Best ratings in near-term
GNW reported a 3Q08 RBC ratio of 360% (levels typically consistent w/ double-A ratings). In 4Q08, it freed $115M in capital and was working on another $500M in capital-relief efforts (half internal). If credit losses are similar to 3Q08’s $(321)M, the firm thinks GNW may avert further downgrades through at least another quarter.

Asset sales—if possible—would help GNW’s capital and liquidity position
GNW could reinsure run-off blocks of life insurance and annuities; divest of some or all of its international businesses (including lifestyle protection and mortgage insurance); or sell its smaller wealth mgmt businesses. However, buyer demand for these assets could be light. Most insurers appear capital constrained at this time.

Valuation: Adjusted 4Q08E BVPS
UBS $16 PT assumes ~(30)% discount to GNW’s 4Q08E BVPS (which factors in quarter-to-date fair value declines in its investment portfolio) to reflect the possibility of a book value dilutive capital raise.

This is good news for GNW—since some observers suggested that the credit facility would not be accessible, as was the case for AIG when it tried to draw on its bank credit lines on September 15. Even after the good news, some suggested that this appears to be a desperate move for an investment-grade rated company. But, make no mistake, these are unprecedented times. And, GNW is
doing the right things to protect its liquidity.

Notablecalls: I have a bet going on since yesterday - GNW will surpass the $2 level today or I will be making 30 push-ups.

I don't plan to lose that bet.

GNW has $3.8 bln in cash - sufficient to fund $3.7 billion in GIC and funding agreements that may be
coming due in the next 12 months.

The stock is still trading like a Chap-11 candidate, yet the news from yesterday pretty much migitated these concerns.

I suspect GNW will trade above the $2 level today.

1 comment:

aymon said...

you must be a lot stronger now. :)