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Rating Action:

Moody’s downgrades Genworth’s debt ratings; outlook developing

15 May 2020


New York , May 15, 2020 – Moody's Investors Service has downgraded the senior unsecured debt rating of Genworth Holdings, Inc. (Holdings) to B3 from B2 and changed the outlook to developing. The action reflects the continuing delays to close the planned acquisition of the company by China Oceanwide Holdings Group Co. Ltd. (China Oceanwide) (unrated) including obtaining the required regulatory approvals which underlines the risks to consummate the transaction, and the significantly higher volatility in the global financial markets due to the coronavirus pandemic which will challenge the company's ability to build liquidity. Genworth Financial Inc. (Genworth) (unrated) is the ultimate holding company for Holdings.

Concurrently, Moody's affirmed the Baa3 insurance financial strength (IFS) rating of Genworth Mortgage Insurance Corporation (GMICO). The outlook for GMICO was changed to stable from positive.

The rating action is in response to Moody's assessment of the possible effects of the coronavirus on Holdings and GMICO's respective credit profiles. The coronavirus-related economic downturn is creating a severe and extensive credit shock across many sectors, regions and markets. The insurance industry has been one of the sectors affected by the shock resulting in a slowdown in business activity, as well as asset volatility and an expected increase in insurance claims. We regard the coronavirus pandemic as a social risk under our ESG framework, given the substantial implications for public health and safety.

Please see the complete list of ratings below.

RATINGS RATIONALE

– Holdings

Moody's downgrade of Holdings is largely driven by the expected deterioration in cashflow and limited access to the debt capital markets at the holding company, and the need to develop alternative financing arrangements, absent a transaction with China Oceanwide, to its upcoming debt maturing of approximately $1.1 billion in 2021. The downgrade also reflects the ongoing strain on Genworth's financial flexibility and balance sheet from the impact of the coronavirus pandemic on executing financings solutions to extend its debt ladder. Genworth's ability to organically build additional liquidity is also constrained by its expected limited dividends in 2020 from its insurance subsidiaries, relative to its debt load.

The developing outlook on Holdings reflects the fact that at this stage, liquidity is pressured, and long-term financing solutions for its debt ladder remain uncertain, and so in due course either positive or negative rating pressure could emerge. The uncertainty remains around the ability to execute alternative arrangements to address its upcoming debt maturities during heightened levels of financial market volatility absent a transaction with China Oceanwide, the potential amounts from the AXA lawsuit, and the final outcome of the planned acquisition of the company by China Oceanwide. More positively, Genworth has material holding company resources to evaluate potential refinancing alternatives, including its stake in its mortgage insurance operations and net cash and investments of approximately $575 million at March 31, 2020 to address upcoming debt maturities in case the transaction with China Oceanwide does not close.

– GMICO

The ratings affirmation of GMICO is based on its strong position in the US mortgage insurance market with an approximate 19% market share, good client diversification, its comfortable cushion in its compliance with the GSEs' PMIERs, and good profitability that has increased liquidity at the company. These strengths are tempered by the commodity-like nature of the mortgage insurance product, the potential for price competition in the US mortgage insurance market, the potential implications on the company's credit profile from the contraction of the US economy due to coronavirus-related shutdown and deteriorating economic conditions, and Genworth's weak financial flexibility that exposes the company to event risk from Genworth's inability to address its debt ladder and restructure its organization.

The change in outlook to stable reflects our view that GMICO's credit profile faces uncertainties related to mortgage loan credit performance due to the economic disruption created by the coronavirus pandemic. Similar to other peers in the sector, the company faces higher mortgage delinquencies as unemployment rate spikes amid deteriorating U.S. housing market fundamentals. Moody's believes the ultra-low interest rates, bear market, and coronavirus-driven restrictions on movement of the population will stress most aspects of mortgage insurers' financials, including those of GMICO. These factors impact new business, profitability, capital adequacy, and the investment portfolio's performance. However, GMICO's profitability is expected to remain robust over the next several years. The company's good investment portfolios, low mark-to-market loan to value (LTV) ratios on older vintage loans, extensive reinsurance protection and strong capital positions all support the credit profile of the company as it enters this unique economic downturn.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

– Holdings

Upward pressure on Holdings' ratings could develop if Genworth demonstrates a path to reduce its debt ladder that may include closing the transaction and the $1.5 billion capital investment plan with China Oceanwide. Capital support to repay all or a portion of the 2021 debt maturities at deal closing would lead to a change in the outlook to stable, and/or an upgrade of Holdings ratings. Additionally, the following could place upward pressure on Holdings ratings: (1) an improvement of holding company financial flexibility including increased dividend capacity; (2) a reduction in the amount outstanding in the debt ladder beyond 2021.

A downgrade of Holdings' ratings could result from the following factors: (1) lack of progress in developing alternative arrangements for its upcoming debt maturities in 2021; and (2) if the planned acquisition by China Oceanwide is terminated or further delayed.

– GMICO

Moody's cited the following factors that could lead to an upgrade of GMICO's rating: (1) improvement in Genworth's financial flexibility, including a clear path to managing its debt maturities in 2021; (2) maintaining a top tier market position in the US mortgage insurance market; (3) profitability metrics consistent with those of its peers, or return on capital above 10%; (3) comfortable compliance with PMIERs and a sufficiently ratio greater than 110%; and (4) more comprehensive reinsurance coverage on its entire insured portfolio.

Factors that could lead to a rating downgrade include: (1) a further weakening of Genworth's financial flexibility; (2) Genworth does not complete its acquisition with China Oceanwide and the associated actions to address its liquidity concerns Holdings; (3) a consistent and material decline in GMICO's capitalization by more than 10% over a rolling twelve month period; (4) a significant weakening of underwriting standards and profitability; and (5) non-compliance with the PMIERs or a sufficiently ratio less than 110%;

AFFECTED RATINGS:

The following ratings have been downgraded:

Issuer: Genworth Holdings, Inc.:

…backed senior unsecured to B3 from B2

…backed senior unsecured shelf to (P)B3 from (P)B2

…backed junior subordinate to Caa1 (hyb) from B3 (hyb)

…backed junior subordinate shelf to (P)Caa1 from (P)B3

Outlook actions

..Issuer: Genworth Holdings, Inc.

…Outlook, Developing from Negative

The following ratings have been affirmed:

Genworth Mortgage Insurance Corporation: insurance financial strength at Baa3;

Outlook Actions:

..Issuer: Genworth Mortgage Insurance Corporation

....Outlook, Stable from Positive

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Mortgage Insurers Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1087208 . Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

Holdings is the intermediate holding company of Genworth, an insurance and financial services holding company headquartered in Richmond, Virginia. Holdings also acts as a holding company for its respective subsidiaries including its life and international mortgage insurance businesses. In addition, Holdings relies on the financial resources of Genworth including the US mortgage business to meet its obligations. The group reported GAAP net income (loss) available to Genworth's common shareholders of $(66) million at March 31, 2020 on total assets of $98.8 billion and shareholders' equity of $14.8 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004 .

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569 .

At least one ESG consideration was material to the credit rating action(s) announced and described above.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Bob Garofalo
VP-Sr Credit Officer
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Scott Robinson, CFA
Associate Managing Director
Financial Institutions Group
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

Releasing Office :
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS : 1 212 553 0376
Client Service : 1 212 553 1653

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