Andrew Willis – Globe and Mail

The bat­tered U.S. mort­gage insur­ance indus­try is get­ting back on its feet in part by tap­ping Cana­dian investors for $850-million, as Gen­worth MI Canada Inc. pre­pares for one of the largest IPOs this decade.

Gen­worth, the domes­tic arm of a U.S. life and mort­gage insurer, set the price yes­ter­day on a mas­sive ini­tial pub­lic offer­ing that will see the com­pany sell 44.7 mil­lion shares at $19 each, with under­writ­ers hold­ing an option to sell an addi­tional $127-million of stock. If $977-million of stock is sold, this will be the largest IPO seen this year on the Toronto Stock Exchange, and the fourth-largest IPO on the TSX since 2001.

The New York Stock Exchange-listed par­ent, Gen­worth Finan­cial Inc., (GNW-N5.35–0.28–4.97%) is rebuild­ing its own bal­ance sheet by sell­ing a minor­ity stake in its prof­itable Cana­dian sub­sidiary. Dutch insurer ING Group did much the same by sell­ing a stake in its Cana­dian unit sev­eral years ago, then sell­ing the entire com­pany into pub­lic mar­kets ear­lier this year for $2.16-billion.

The pro­ceeds of this share sale will be split, with $753-million going to the U.S. par­ent, and $97-million ear­marked for pay­ing down all out­stand­ing debt and build­ing the busi­ness of the Cana­dian unit.

As U.S. mort­gage defaults mounted over the past year, Gen­worth Finan­cial shares tanked, as did those of its peers. The stock plunged from a high of $37 in 2007, at the height of the U.S. real estate boom, to 84 cents in March, when the com­pany was denied access to the Trou­bled Asset Relief Pro­gram or TARP bailout. Chief exec­u­tive offi­cer Michael Fraizer said at the time he would pull other “strate­gic levers,” includ­ing asset sales.

Ana­lysts pushed Mr. Fraizer to split the U.S. com­pany into sep­a­rate life and mort­gage insur­ance units, and sell one line of busi­ness, to rebuild the bal­ance sheet. Instead, he is rais­ing money by sell­ing a minor­ity stake in the lucra­tive Cana­dian unit.

Where the U.S. com­pany is strug­gling with an implod­ing real estate mar­ket and weak port­fo­lio, Gen­worth MI Canada is con­sis­tently prof­itable, earn­ing $322-million on rev­enue of $722-million in 2008, for a sky-high 17-per-cent return on equity. The com­pany was spun out of Gen­eral Elec­tric in 1995.

In Canada, Gen­worth holds a 30% share in what amounts to a two-player res­i­den­tial mort­gage insur­ance sec­tor. Its only com­peti­tor of note is the Canada Mort­gage and Hous­ing Corp., a Crown cor­po­ra­tion. Gen­worth Canada insures mort­gages sold by 180 lenders, includ­ing the big banks. The com­pany backs home­own­ers in every province, with 49% of its mort­gages on homes in Ontario.

CIBC World Mar­kets, Gold­man Sachs and Sco­tia Cap­i­tal led the Gen­worth IPO.

Assum­ing the under­writ­ers do exer­cise their $127-million option, which they usu­ally do, this IPO will result in the U.S. par­ent own­ing 56 per cent of the com­pany, and pub­lic share­hold­ers hold­ing a minor­ity stake. Shares are expected to start trad­ing on the TSX after the IPO closes on July 7.

————————————————————————————————————

Con­tact the Jef­frey Team for more infor­ma­tion  -  416−388−1960

————————————————————————————————————

Related posts:

1. Toronto Real Estate Loves Low Mort­gage Rates
2. Home buy­ers on a bud­get may find lenders will­ing to give credit for renos
3. Trump Has Com­pe­ti­tion For Toronto’s Skyline
4. U.S. hous­ing woes are not headed here
5. Easy credit, soar­ing prices raise new hous­ing fears