China Oceanwide updates and amends merger filing, tempered by pending Genworth MI Canada sale

Attorneys for China Oceanwide Holdings Co. Ltd. have submitted additions and exhibits to its application to acquire Genworth Financial to its state regulator to reflect the proposed sale of Genworth’s montage insurance stake in Genworth MI Canada Inc. to Brookfield BBP Canada Holdings Inc. in hopes regulators will rely upon previous approval letters.

The Genworth Canada deal won’t change any of the previously-agreed upon terms and conditions of the original acquisition, the lawyers assured in their Oct. 8th letter. China Oceanwide believes that the Genworth buyout can be completed under the original approval granted Jan. 11, 2019 by the Commission, the letter stated.

The letter and accompanying exhibits submitted to the Virginia State Corporation Commission also pinned the closing of the Genworth Canada transaction on year-end 2019, with aspirations to close the entire deal of the Virginia-domiciled long-term care insurer to Oceanwide soon thereafter. 

The letter also details a corporate maneuver by Genworth to contribute 100% of its stock in Genworth Mortgage Holdings, Inc. to Genworth Holdings, Inc. (GHI) before consummating the Genworth Canada deal. Called the “contribution transaction,” this proposed internal insurance holding company change allows greater potential financial flexibility, and gets around any covenants prohibiting the sale of all or substantially all of GHI’s assets, the lawyers argue. This internal transaction will also increase the asset base of GHI, they said.

The Oceanwide legal team letter states that the so-called contribution transaction was exempted from Form A or legal change of insurance company ownership state filing requirements by the North Carolina Department of Insurance in August. Additionally, the parties said they had received non-objection letters from federal mortgage entities Fannie Mae and from Freddie Mac in September. It is not clear that the other states where prior approval for the Oceanwide deal have been granted —Virginia, Delaware, South Carolina, Vermont and New York among them —have cleared it.

Genworth struck a deal back in August to sell its almost 60% stake in Genworth Canada to clear the decks of any Canadian government objection to the acquisition of the entire Genworth firm by the Chinese conglomerate.Purchaser Brookfield Business Partners agreed as part of this deal to give Genworth Financial up to $850 million in bridge financing if regulatory approvals for the Genworth mortgage insurance transaction weren’t in place by Oct. 31, now three weeks away.

“Genworth Canada is not a direct or indirect subsidiary or parent of the domestic insurers, and the Genworth Canada transaction will have no impact on the operations, management, personnel or policies of the domestic insurers,” the lawyers’ letter claims.

 The Virginia Commission approved the Oceanwide-Genworth deal well before the decision to sell Genworth’s stake in the Canadian mortgage insurer was announced. China Oceanwide and Genworth were not making headway with Canadian regulators in their bid for approval of the deal despite sending out a cadre of top lobbyists  to meet for months with Canadian officials and regualtors.

The Oct. 8 filing’s exhibits include previous securities filings, merger agreements, waivers to extend the deal expiration and a new post-mortgage insurance sale transaction organization chart.

The original $2.7 billion proposed acquisition of Genworth by Oceanwide was announced three years ago — on Oct. 21, 2016 — and has been extended a dozen times as it awaited one approval after another, from foreign, federal and local regulators. The current waiver extends the deal until Dec. 31, 2019, but it is clear that if the Brookfield deal isn’t consummated by then, there will be an opportunity for another extension. 

Oceanwide is also preparing an updated organizational chart as there have been internal changes in ownership interests held by subsidiaries or individuals d within the China Oceanwide group, the letter stated. It said it would submit it to regulators when it becomes available. 

One exhibit kept confidential is an updated three-year financial projections for Genworth. The lawyers write that they contain confidential and proprietary trade secret information, and “disclosure would be materially adverse to the Applicants and the Domestic Insurers.” 

The director of the Division of Information Resources for the Commission cautioned against pre-judging the direction of or the outcome of the regulators review of the material 

A Genworth spokeswoman said that the company has been “working closely with all of our regulators throughout the transaction approval process. The purpose of this filing was to update the Virginia Bureau of Insurance on developments in the transaction in light of closing delays.” She did not specify which delays or if this referred to the Genworth Canada-Brookfield transaction. 

Canada has already issued a no-action letter for the Brookfield Business Partners  deal, meaning the government there does not object and has clearance there.

Oceanwide/Genworth have likely amended their filings in other states with insurance company subsidiaries in addition to their state of domicile, Virginia. Delaware and New York have not previously commented or made documents public, as Virginia does on its website.  Delaware requires a hearing with a thirty-day notice for a merger review, and it is unknown whether the Brookfield deal would trigger a new review. A spokesperson for the Delaware Insurance Department did not respond. 

Once all other regulatory approvals are gained or re-gained, as the case may be, the Oceanwide deal will still require clearance in China for currency conversion, the parties have stated in regulatory filings. 

Separately, the Bland & Sorkin letter also disclosed that although the three security directors mandated by an agreement to safeguard policyholders’ personal identifiable information as part of the approval nod from the Committee on Foreign Investment in the United States haven’t joined Genworth’s board yet, they have been busy. They are already “providing oversight and review of the security procedures” that Genworth has put in place, according to the Bland & Sorkin lawyers representing Oceanwide.

CFIUS has also approved the nominations of the three high-level security personnel: General Raymond Odierno (Ret.); Lt. General Karen Dyson (Ret.) and Eric Rosenbach, they noted. 

Additionally, Ankura Consulting Group, LLC, the third-party monitoring firm hired by Genworth a part of the mitigation agreement with CFIUS, is now filing monthly certifications with the Treasury Department and the Department of Justice on Genworth’s adherence to the CFIUS mitigation agreement, the Oceanwide lawyers told Virginia’s insurance regulators.