The proposed amendments are credit positive for Genworth Holdings because it eliminates the risk of a cross default on the notes in the event that insurance regulators seize GLAIC, a subsidiary of Genworth's long-term care (LTC) subsidiary Genworth Life Insurance Company (GLIC, B3 negative), in a downside scenario.
However, removing the LTC subsidiaries and potentially GLAIC as significant subsidiaries (entities whose bankruptcy or similar event, including a regulatory seizure, would automatically cause an event of default with respect to the notes) is credit negative for their respective insurance financial strength since these companies become of less strategic importance to Genworth. In addition, GLAIC remains exposed to the weaknesses of its immediate parent, GLIC, an LTC insurer with substantial tail risk. We do not expect Genworth, or China Oceanwide Holdings Group (COH), a Beijing-based international holding company that intends to acquire Genworth for approximately $2.7 billion in cash, to provide additional capital support to these businesses.
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