Brookfield Business Partners to enter into Canadian mortgage insurance with $1.8bn Genworth acquisition | Corporate Finance

Brookfield Business Partners announced yesterday its entrance into an agreement to acquire an aggregate of 48,944,645 common shares of Genworth MI Canada Inc. This represents an approximate 57% controlling interest in the business, which is being purchased from Genworth Financial for approximately CA$2.4bn (US$1.8bn) or CA$48.86 per share.

Brookfield Business Partners intends to fund approximately US$700mn of the purchase on closing and for certain of its institutional partners to co-invest alongside it for the balance.

Brookfield Business Partners has also agreed, between now and the closing of the transaction, to provide Genworth Financial, Inc. with a bridge loan of up to US$850mn that is intended to be repaid from proceeds of the sale of its interest in Genworth Canada.

Genworth Canada, through its subsidiary Genworth Financial Mortgage Insurance Company Canada, is the largest private sector residential mortgage insurer in Canada, providing mortgage default insurance to Canadian residential mortgage lenders, making homeownership more accessible to first-time homebuyers.

“We are very pleased to make this investment in Genworth Canada, a high-quality leader in the mortgage insurance sector,” said David Nowak, Managing Partner, Brookfield Business Partners. “Genworth is an industry-leading business that generates strong, consistent earnings and operates in a sector with high barriers to entry. We look forward to partnering with management to support its ongoing success, drawing on our expertise in insurance and residential real estate.”

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An essential service provider to the housing market, Genworth Canada is a strong, high-performing business serving an important role in supporting the stability of Canada’s housing market. Financial institutions in Canada are required to purchase mortgage insurance when residential mortgage down payments represent less than 20% of the purchase price. Genworth also has a strong market share, having established itself as the country's largest private sector residential mortgage insurer through a broad underwriting and distribution platform across the country that provides customer-focused products and support services to the vast majority of Canada’s residential mortgage lenders and originators.

Additional features that make Genworth an attractive opportunity to Brookfield Busuiness Partners include:

High barriers to entry. Genworth Canada operates in a highly regulated industry with strict capital adequacy requirements, creating natural barriers to entry. The business has established excellent and long-standing relationships with high quality lenders including leading Canadian banks, mortgage finance companies, and other regional lenders and credit unions.
Long-term, stable earnings and strong cash flows. Genworth Canada has a long-term track record of generating consistent earnings and attractive returns on capital.
Resilient risk profile. Genworth Canada’s well-established, national footprint provides geographic market and customer diversity to the business. A strong regulatory framework combined with conservative risk management practices of lenders and insurers has contributed to a stable Canadian housing and mortgage sector with consistently low mortgage delinquency rates.

Closing of the transaction is subject to customary approvals, including the approval of the Minister of Finance (Canada), and is expected to occur in the second half of 2019.