The agreement between Genworth Financial and AXA will allow the company to continue its "Plan B" to spin off its US mortgage insurance subsidiary if the China Oceanwide deal falls apart.
As part of the settlement, Genworth gave AXA a promissory note secured by a 19.9% stake in the US mortgage insurer. It is also backed by a 19.9% stake in the Australian MI unit; Genworth Financial currently owns 52% of this separately traded company.
"The settlement removes the uncertainty about the amount of the liability resulting from the AXA lawsuit, postpones our commitment to make the bulk of the payments to AXA, and enables us to pursue our plans to pursue alternatives to raise capital and fulfill Our short-term goals continue to meet liquidity needs, including our $ 1 billion debt due in 2021, "said Tom McInerney, President and CEO of Genworth, in a press release.
"These alternatives include a potential debt offering and the ability to prepare for an IPO of 19.9% of our US mortgage insurance business under market conditions if our pending transaction with China Oceanwide is not completed," said McInerney.
These overhangs in Genworth's finances became apparent in the recent renewal of the China Oceanwide agreement. However, this agreement contains triggers for both parties that may result in them withdrawing from the transaction.
This led Genworth to revive the possibility of an IPO that it had planned before the China Oceanwide deal.
The comparison between Genworth and AXA was the result of a ruling by the United Kingdom's High Court in which Genworth was held responsible for the mis-sale of payment protection insurance that was taken out in two former units between 1970 and 2004 (but was concluded by unrelated third parties to consumers) AXA acquired the units in 2015.
The court had yet to pay final damages.
As part of the settlement, Genworth is expected to pay £ 100m (approximately $ 127m) to AXA on July 23. The company had previously made a £ 100m payment prior to reaching the settlement.
Genworth has agreed to make deferred promissory note cash payments totaling approximately £ 317 million ($ 403 million) in two installments: the first on June 30, 2022 and the second on September 30, 2022.
In addition, Genworth could be on the hook for additional payments to AXA for pending claims. The current estimate is £ 107 million ($ 136 million).
The note ends with full payment by the due date. Genworth has also agreed to make AXA prepayments for the promissory note if there are certain debt or equity transactions or if it receives side dividends from its mortgage insurance companies.