Genworth Financial, Inc. (GNW) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to Genworth Financial's special topics for investors conference call. My name is Katie, and I will be your coordinator today. [Operator Instructions] As a reminder the conference is being recorded for replay purposes. [Operator Instructions] I would now like to turn the presentation over to Tim Owens, Vice President of Investor Relations. Mr. Owens, you may proceed.

Thank you, operator. Good morning, everyone, and thank you for joining Genworth this morning for this special call. We are once again live today and all in remote locations, so please excuse any technical difficulties we may encounter. Today, we will discuss the Oceanwide merger extension press release and 15th waiver that were released earlier this week. You will hear from our President and Chief Executive Officer, Tom McInerney. Following his prepared comments, we will open up the call for a question-and-answer period. During the call this morning, we may make various forward-looking statements. Our actual results may differ materially from such statements. We advise you to read the cautionary notes regarding forward-looking statements in our most recent earnings release and related presentation, the 15th waiver press release as well as the risk factors in our most recent annual report on Form 10-K as filed with the SEC. In addition, I would note that we are currently in our quiet period with respect to our second quarter financial results. We will, therefore, confine our comments to the topics that were included in the Oceanwide merger extension press release and 15th waiver. And now I'll turn the call over to our CEO, Tom McInerney.

Thank you very much, Tim, and good morning, everyone, and thank you for joining our call on short notice. And if there are technical difficulties on my end, it could be my 2 labs. So I just warn you that they sometimes say hello. We're holding this call today to provide additional information around the updates we announced on Tuesday, June 30, as part of Genworth and Oceanwide's agreement to extend the merger deadlines at September 30, 2020 as well as steps Genworth is taking to enhance liquidity. Following this update, we received several questions from our shareholders, and I felt it would be prudent to address these questions publicly and provide additional context around the factors that led to the announced 15th waiver and agreement. But let me be clear that Genworth and Oceanwide remain fully committed to the transaction. Oceanwide has been an incredible partner to Genworth over the last 3.5 years as Genworth worked to overcome several hurdles in order to obtain all the necessary U.S. regulatory approvals. We continue to believe the transaction represents the best and most certain value for our shareholders at $5.43 per share. And as stated in our press release, Chairman Lu continues to believe in the future value of Genworth that Genworth will bring to the Oceanwide enterprise through bringing the benefits of Long-Term Care Insurance solutions to China. Oceanwide is working as hard as they can to finalize the funding plan so that we can bring the transaction to a successful closing. Given that we still believe the transaction is in the best interest of all of our shareholders and other stakeholders, Genworth's Board agreed to another extension to provide Oceanwide with additional time to finalize the financing for the transaction purchase price of $5.43 per share. This particular extension was different from our prior extensions in light of the unprecedented circumstances we are operating through as a result of the COVID-19 global pandemic. The pandemic has delayed the closing of the transaction in a way unforeseen by anyone due to uncertainty and volatility in global capital markets as well as restrictions on travel that would normally help facilitate a global transaction, such as ours. With this environment as backdrop, Genworth and Oceanwide agreed to several provisions in the waiver that were aimed at achieving 2 critical objectives. First, provide more clarity before the full extension period expires regarding Oceanwide's progress towards funding the transaction, which, in turn, would inform the timing of the steps Genworth would otherwise need to take to address its near-term cash needs; and second, to provide Genworth with the flexibility to move forward with plans to address its near-term financial obligations, which include liabilities arising from the pending AXA litigation as well as approximately $1 billion in debt maturing in 2021. Regarding the first objective, we felt it was prudent to build an additional checkpoint with respect to the transaction funding in advance of the September 30 day to assess progress was being made. Specifically, the 15th waiver includes provisions for Oceanwide to submit satisfactory evidence to Genworth by August 31, 2020, that Oceanwide has no less than $1 billion in deposit with a third-party financial institution in China that is available to fund the acquisition of Genworth and Hony Capital and/or other accessible third parties have committed to provide Oceanwide $1 billion or more on terms acceptable to Genworth from sources outside of China to fund the transaction. Genworth believes evidence of this level of capital commitment by August 31, which shows satisfactory progress towards funding the full transaction consideration and is appropriate given the current macroeconomic environment and the volatility in capital markets. If by August 31 these conditions are not met, Genworth has the right in its sole discretion to terminate the merger agreement and move forward with its alternative plans to maximize shareholder value. Turning to our second objective. Genworth and Oceanwide also agreed to additional conditions that provide Genworth with flexibility to pursue alternatives to raise capital and meet its near-term liquidity needs. There are 2 upcoming financial obligations for which Genworth is evaluating its options to raise capital in the absence of the transaction. First, liabilities arising from the AXA litigation; and second, our $1 billion in debt coming due in 2021. With respect to the AXA litigation, while we continue to be uncertain of the ultimate amounts that may be awarded pursuant to a judgment, the damages hearing concluded on June 23, and we expect the final judgment to be delivered in the near term. At the damages hearing, AXA updated its claim amount, net of the January interim payment that Genworth made, to approximately GBP 400 million, which converts to approximately USD 494 million at March 31 foreign exchange currency rates. AXA is also seeking a tax gross-up on the amounts invoiced for an additional amount of approximately $144 million, assuming a tax rate of 19% at March 31 foreign exchange rates. In addition, AXA is seeking an award of interest, which we estimate to be approximately $55 million. And finally, as part of the judgment, AXA is seeking a declaration that Genworth is obligated to pay damages for additional underlying payment protection insurance complaints that have been received but not yet processed. As part of our 15th waiver, Oceanwide has agreed to allow Genworth to negotiate the settlement of the AXA litigation, which provides critical flexibility as we seek to reach the best possible outcome, and Oceanwide has also agreed to allow Genworth to engage in discussions regarding debt and equity offerings. These terms provide Genworth with greater flexibility within the merger agreement to explore alternatives in the near term to increase our available cash and liquid assets, which were $575 million as of March 31. These alternatives include a potential debt offering as well as the ability to prepare or a 19.9% IPO of our U.S. Mortgage Insurance business, subject to market conditions. There are several ways that these steps can ultimately take shape as they are dependent on several factors, including market conditions. For reference, however, I think it is helpful to remind investors that USMI's U.S. GAAP book value as of March 31, 2020, was $3.9 billion, and its 2019 full year adjusted operating profit was $568 million. It is also important to note, as we consider different debt financing alternatives, that USMI currently has no debt at its holding company level. Ultimately, if Oceanwide disagrees with the steps that Genworth takes to address these matters, it has the right to terminate the transaction in its sole discretion. In that scenario, Genworth would be prepared to take the appropriate steps to meet our near-term liabilities that I've outlined today, including various asset sales as well as to evaluate a potential 100% sale of Genworth to another acceptable third-party. With this said, we are keeping Oceanwide informed at every step along the way regarding any potential steps we may take. I personally have been in touch with Oceanwide regularly over the last several months to brief them on our ongoing business matters, including the AXA litigation and the options we are assessing to address our liabilities, and they, in turn, have provided me with regular updates on the status of the funding plan. Oceanwide has been very supportive of Genworth's plans throughout these conversations. I have developed an excellent relationship with Oceanwide's Chairman over the last 4 years. I have told them that any steps we may take to meet our liquidity needs would be implemented in a way to maximize Genworth's value, whether to current general shareholders or Oceanwide post-closing. Our sale of Genworth Canada in December 2019 serves as a good example of the strong cooperation between Oceanwide and Genworth. We kept Oceanwide fully updated at each milestone in the Genworth Canada sale process. They provided input to us along the way, and we were able to close the sale of Genworth Canada for $1.8 billion with Oceanwide's full support. When reviewing the 15th waiver and merger agreement as a whole, Genworth believes that the 3-month extension, along with the August 31 check-in date for Oceanwide to line up the funding for the transaction, was reasonable given the flexibility that Oceanwide was willing to provide to Genworth. We are very grateful that Oceanwide has agreed to these terms and conditions, which is rare for any potential acquirer in a transaction such as this, demonstrating Oceanwide's continued commitment to closing the transaction as soon as possible. While having this flexibility is important, it is also important to remember the Oceanwide transaction is still the best alternative for our shareholders and other stakeholders, not only given the $5.43 per share purchase price consideration, but also due to the $1.5 billion post-closing capital commitment for Oceanwide. This has been made even clearer by Oceanwide's updated contribution schedule in this latest extension agreement, which now commits Oceanwide to make, subject to necessary regular approvals or clearances, 3 equal contributions of $500 million to Genworth starting by January 31, 2021, with the final tranche to be contributed by July 31, 2021, if the transaction closes by September 30. In this scenario, Genworth will likely still move forward with a debt offering in the near term but may not need to pursue a partial IPO of our U.S. Mortgage Insurance business as the post-closing capital commitment plan would enable Genworth to meet its 2021 debt maturities. We also received some questions around our existing regulatory approvals, which I would like to address next. As a reminder, Genworth and Oceanwide have previously received all necessary U.S. regulatory approvals to close the transaction as of the end of March, subject to confirmation from the Delaware Department of Insurance that the acquisition may proceed under its existing approval, which the parties would seek once the funding plan is finalized. While our approval from North Carolina will expire within the extension's September 30 window, Genworth has kept and will continue to keep all of its regulators apprised of the transaction updates, including providing certain regulators with supplementary information to reflect the passage of time and other updates to the transaction and is working to ensure that existing approvals will be extended or confirmed, if necessary. Two critical components of our regulator's approvals have been the $100 million and $175 million capital contributions to GLICNY and GLIC, respectively, at closing and the $1.5 billion post-closing capital contribution. Genworth is withdrawing and refiling its FINRA continuing membership application due to the passage of time. The FINRA membership is for a Genworth broker-dealer and is necessary because Genworth still a small variable annuity block in runoff. Oceanwide will also need to receive authorization for currency conversion and transfer of funds from China State Administration of Foreign Exchange, or SAFE. While I recognize there's a lot of new information to digest in our latest agreement with Oceanwide, I want to make clear that both parties are very committed to the transaction and that while the flexibility provided to Genworth in these additional conditions is of the utmost importance for preserving shareholder value as we seek to meet our near-term obligations, we continue to work towards closing the transaction as soon as possible. Finally, I would like to thank our shareholders for the questions and feedback we have received over the last few days. As hopefully evidenced by this call, we remain committed to providing as much transparency as possible on the strategy Genworth is executing to maximize shareholder value. Now I would like to turn the call back over to Katie to open the line up for any questions.

[Operator Instructions] We'll take our first question from Ryan Krueger with KBW.

Tom, I'm hoping you can help us understand China Oceanwide's funding plan in more detail. Just given the amount of time that's passed, I guess, it's disappointing that they don't already have the funding in place. So I know part of the funding is the -- is debt from Hony Capital or others in the U.S., but what about the rest of the cash that they need out of China and elsewhere? Is it all expected to be funded with debt? Or can you help us understand kind of how they're going to bridge the gap between not having the funding available now and within the next few months?

Thank you for the question, Ryan. It's a good one, and many investors have asked that question. So the original financing plan was that China Oceanwide would fund the full $2.7 billion purchase price out of funds it has in its businesses in Mainland China. Obviously, that's -- it does have international operations, but most of its wealth and excess cash is in Mainland China. In 2018 -- we signed the deal, as you know, in 2016. In 2018, Oceanwide was made aware that SAFE may limit -- as they have done on other transactions, may limit the amount that Oceanwide can use in Mainland China to USD 1 billion. And so in 2018, the Chairman and Oceanwide looked at the balance of the funding, over $1 billion, outside of Mainland China. And they talked to investors, lenders, private equity firms, I think, all over the world. And ultimately, they decided in 2018 on a $1.8 billion, I would call it, a bridge funding from Hony Capital. They had other options, but that's what they decided. And then, as you know, between when we signed in '16 to the end of March 2020, all the delays in the deal were because of Genworth regulatory issues. The 2 big ones were -- that took most of the time were approval from CFIUS. I would say we're still the only U.S.-China deal that's been approved by CFIUS that I'm aware of in the last 3.5 years. So I do think that's a tribute to both Oceanwide and Genworth. And then, obviously, we spent about a year, ultimately, deciding to sell our Genworth Canada business because of issues surrounding, really, in that case, Huawei that I think you're well aware of. And so in March of 2020, when we were -- the whole world was in the middle of the COVID-19 pandemic, Oceanwide did hear from Hony Capital that because of the COVID-19 pandemic and all that has meant on general financing of most deals around the world, that they needed more time to rework the $1.8 billion commitment from Hony, and that's what they've been doing. So I would say, and I said this, I think, on the March 6 call -- earnings call for the first quarter, that I think the $1 billion in Mainland China is in pretty good shape. It would be, I think, easier for Chairman Lu as if it was allowed to take more than $1 billion out of China, I think that's probably still possible, but the balance was the $1.8 billion Hony Capital commitment, and now he's had to rework that because of the COVID-19 situation.

Understood. Okay. And then I guess somewhat related to this, can you -- I guess can you help us understand why China Oceanwide has continued to maintain the same takeout price as you've sold assets? And I guess, thinking forward, you now have a potential AXA litigation that was not known when the original merger was signed, and now you're also contemplating a 19.9% IPO of USMI. So could you, I guess, address that issue?

Yes. Ryan, it's a complicated answer, but let me start at a high level that from China Oceanwide's perspective, the rationale strategically for this transaction remains as good or better than when the Chairman signed the deal in 2016. So how do I say that? First, one of his main concerns about going forward with this deal based on the due diligence he did and the advice he got from his bankers and lawyers was the biggest challenge with Genworth was the legacy Long-Term Care Insurance liability. That was a big pull in that you really shouldn't do this deal unless you're 100% confident that you don't have an ongoing exposure to that. And so in the 3.5 years that we've been trying to get regulatory approvals, we finally have those, I think we have shown China Oceanwide that we've made tremendous progress on our Multi-Year Rate Action Plan, and I've talked a lot about that to investors. In 2016, when I was talking with him before he signed the deal, we had not made nearly as much progress on the LTC premium increases as we have today. And so as you know, as of the end of the first quarter of 2020, we have received approvals on LTC premium increases and benefit reductions that have a net present value of $12.7 billion. And so that is substantially higher than when he signed the original deal. I also think with all -- and you -- all of our investors have seen this, with the challenges that were presented by the New York regulator, the Delaware regulator, they realized that the only way we were going to put, whether it's Genworth or Oceanwide, if the deal closes, that capital was going to go into those 2 Life companies was under their approval process. So they did use their approval process to have us agree. Oceanwide and Genworth have put $100 million into New York and $175 million into the Delaware company. I think that convinced Chairman Lu, that it was pretty clear from the regulators that they were not expecting him to put additional capital in post-closing because of that whole process. So on the concern -- the biggest concern he had about Genworth legacy LTC business, I think that's a much better story today than it was. He also valued the various MIs differently than today. I would say, in 2016, I've said this before on these earnings calls, USMI's earnings in 2013 were, for the year, was $225 million. And I said earlier in the call that, last year, the earnings were $568 million. Now obviously, with COVID-19, that is temporarily going to be -- that will have a significant effect on all the MIs, but I do think he has seen a steady progress. And every year, we present 5-year plans to him. And I think whether it's the LTC premium increases or the performance of the MI business pre-COVID-19, I think he has been very pleased by that. And then the third and the biggest reason for the premium of $5.43 from the very beginning has been the upside opportunity. I talked about this in my remarks and I've talked about it in the past, for Genworth, Oceanwide, other partners in China who are very interested and working with Oceanwide and Genworth to build what could be a very significant and substantial long-term care insurance business in China than before there. There'll be 500 million Chinese approximately 60 and older by 2050. There's no real commercial long-term care insurance industry today in China. I think if you've read any of the China government 5-year plans and statements, taking care of the elderly and the aged society as demographics change in China is one of their top priorities, and they have been opening up the market in China for foreign financial insurance companies and others, like Genworth, to come in to bring the innovation to the long-term care environment there. And while, I would say, Genworth has made its share of mistakes in the past in long-term care insurance, like every other insurance company, we are the leader in the U.S. and in the world with the most expertise, the most experience in long-term care insurance. And I think that has ultimately been the major driver for how he valued Genworth. So I would say, from his perspective and my many conversations with him over the last 3.5 years, I think he thinks the long-term vision and premise for this deal is as strong as it was in 2016. It's a long answer to your question, but I'd say those are, I think, the principal drivers as to why we're still at a purchase price of $5.43.

Just one last question, if I could. If the deal does not go through, you talked about the potential 19.9% IPO of USMI. I guess, would you ultimately look to fully separate USMI over time to either a full IPO or a sale?

So Ryan, I would say that, again, I said this, in my 42 years in the insurance business, I've probably done $50 billion worth of transactions, M&A, buys and sales, and I do think I feel good from the Genworth perspective that as part of our negotiations of the last couple of waivers and the 15th waiver, we now have the ability to pursue any other steps, and I talked about some of those in my remarks, that are in Genworth shareholder value interest to maximize that. And so we -- just like with Genworth Canada, we have been talking to the Chairman and Oceanwide about the AXA litigation, for example, since the litigation was filed in 2017. So he is -- every quarter, he has been updated by Kelly, myself, Gregg Karawan, who's our Senior Vice President and also oversees our litigation. So I think he's very fully informed. We do because we -- with COVID-19 and all the uncertainties, we can't count on the closing, just given all the uncertainty. And so we have said that we have to move forward, raise additional cash on top of the $575 million we had at the end of the first quarter. And so we are looking, and we said that in the near term, to raise debt, to add to the cash at the parent company, we are preparing for a 19.9% IPO. And again, we -- for the last 2 or 3 years, I have been updating the Chairman on if the deal keeps getting delayed, again, most of the delays have been because of Genworth regulators, but we had to have backup plans. So he's been fully aware of -- for a couple of years, what our backup plans are. And again, the 19.9% IPO, and that may turn out differently, particularly if we don't -- if we can't close the Oceanwide transaction. The benefit -- and I talked about this a couple of earnings calls ago, Ryan, which I know you were on, where the benefit to Genworth shareholders, potentially to Chairman Lu post-closing, about a 19.9% versus a larger IPO is it does preserve a tax-free spin-off to shareholders over time. And so that's why the focus -- obviously, and I know you're aware, when going forward, we also have a number of outside third parties talking to us about other options for the Genworth assets, including USMI. Again, under the 15th waiver, we are allowed to now -- which you normally wouldn't be able to do in a merger agreement, we are able to talk to those third parties. And so I do think our intention is, as I stated, to issue debt in the near term. And I did note in my comments that USMI, unlike its -- for publicly traded competitors, it has no debt at the holding company level. So there's some capacity there. And also, our plan was the 19.9% IPO. We hope the deal happens. If the deal happens because of how the $1.5 billion comes in, we probably would not -- if we close by September 30, we probably not have -- would not need to do the USMI IPO because of the $1.5 billion from Oceanwide. If the deal doesn't close for any reason, then it's likely we'd have to do that. And we'll be open-minded for other alternatives if they're in the best interest and have the goal, obviously, of maximizing shareholder value.

We'll take our next question from Mark Palmer, BTIG.

Along the lines of what you were just discussing, if you could talk a little bit about the amount of debt capacity there is at the USMI unit, and what kind of constraints could be in place along those lines in terms of the amount of debt that you could raise?

Mark, that, obviously, is all subject to market conditions, but I would just say, as a rough rule of thumb, there's no debt at the USMI holding company level. If you look -- there are 4 -- and you know this, there are 4 publicly traded competitors of MI. I think they serve as good proxies for our business. And if you look at their debt-to-capital ratios, in general, I think you'd find that they are in the 15%, 20%, 25% range. I mean it varies. And some of them have recently raised both debt and equity. So I do think with no current debt at the USMI holding company, and if you say 20%, 25% would be sort of a normal debt load for a publicly traded MI, I think that gives you at least some indication. And as I said, as of the end of the first quarter, the book value -- U.S. GAAP book value of our USMI was $3.9 billion. So that gives you some range. We -- obviously, we are working with our bankers and pursuing the financing, and that will obviously be subject to market conditions. So I can't say anything more in terms of what we might do on that, but hopefully, that gives you at least a general range.

And you discussed the funding plans for Oceanwide, the 2 parts, 1 was in China, 1 outside of Mainland China. Can you talk about what funding plan exists for the $1.5 billion capital contribution that would be funneled in, in 3 parts? Is there a funding plan in place for that?

Yes. There is a funding plan in place. I mean we're focused right now on closing the transaction and raising that $2.7 billion or thereabouts, but there is a funding plan for the $1.5 billion. Obviously, that comes in over time. The amount that -- I mean he has significant assets and wealth in China. And as you pass over a calendar year, there's probably some more opportunity to raise capital within Mainland China. I mean it has to be up to the regulators and SAFE and so on. Also, I think people are generally aware that he is in the process of looking to sell other real estate assets that he has in China -- in the U.S., and he's got an offering on the San Francisco property that I think is public, which is $1.2 billion, $700 million of cash now and a $500 million earn-out. So obviously, that was supposed to close June 30, he just extended that to 9/30. And so he does have assets that he's in the process of -- he's considering selling. He's transforming, he's announced, Oceanwide from a predominantly real estate company into a broader financial service company with real estate, insurance and banking, with Genworth being a core part of his insurance plans. So he has a lot of flexibility. And obviously, there's more time on the $1.5 billion, given when he's committed now to bring that in. And -- but the focus now is -- as I said on the first quarter call, I think the $1 billion in China is in pretty good shape. We're going to get further confirmation of that. And he's really focused on the remaining $1.8 billion so he can close the deal by September 30.

And one more question, if I may. Between the [indiscernible] in 2021, and then there's the outlay associated with the litigation, you've talked about the debt raise and the partial IPO of the U.S. mortgage insurance unit, is there a point at which you would also think about selling a part or all of the company's stake in the Australian Mortgage Insurance unit?

Mark, another good question. So I would say you and Ryan asked the questions that are on our investors' minds that I've heard. And in the press release, we -- that our core focus is on debt financing in the near term and the 19.9% USMI IPO, but that doesn't prevent us from doing anything else. I mean we could do more than a 19.9% IPO of USMI. I mean I think I've explained there is significant tax benefits to shareholder in terms of shareholder value by limiting it to 19.9%, and that is the case. And most of those situations is because the potential for a tax-free spin-off sometime in the future, but we could do more than 19.9%. There's no restriction on that. Also, we did say that the 15th waiver does allow us to consider any other steps, so we could tell USMI, we can do a private deal with USMI. We could -- we do -- we've said in the case of Genworth Australia, that the Board views that more as a financial asset. So that is clearly something that we could consider at some point. But in looking at all those options that are available to us, at this point, the Board and management have decided the best path forward to maximize value for shareholders is a debt raise in the near term and then the 19.9% IPO. And if the deal closes at 9/30, as I said in the remarks, I think we would likely have -- still have done the debt financing because we're working on that now. And while we're preparing for the IPO of USMI, if we can close at 9/30 and given the $1.5 billion when it comes in, we probably would not need to do the IPO because of capital plan from Oceanwide. But we do have -- and that's one of the benefits that maybe wasn't fully understood by our shareholders, because I have received some criticism for why not do a transaction penalty or whatnot. I think what we -- they -- China Oceanwide wanted more time to get their Hony financing in place with them or others. And so we ended up 9/30, but there's this 8/31 check-in date where it gives us rights. But also, we have total flexibility, the total right to really do any steps that we want to take that we think are in our shareholders' best interest. And we'll determine that based in part on whether or not we are able to close on 9/30 and he is -- despite the COVID-19 challenge, he is able to get all that pulled together. But we do -- and as I said, I've done a lot of M&A. I don't -- in most cases, the buyer, so Oceanwide, would require -- and this was in the original merger agreement, would require the seller to operate the business in the ordinary course and anything not in the ordinary course. And so certainly, the -- what we've agreed to do in terms of the money we're committing at closing into the New York subsidiary, the Delaware subsidiary, the sale of Canada, all of those things are certainly not in the ordinary course. So all of those required Oceanwide's approval, and they have now given us the full flexibility to do whatever we need to do. I mean we still -- as I said, the first priority is to close the deal by September 30 for the $5.43 per share, but we do have the flexibility to do any other step and we have the right to do that under the 15th waiver. And -- however, at the same time, which I think you can understand, if to the extent that Oceanwide disagreed with what those steps were, they do have the right in their sole discretion not to go forward. But I think as we showed on the Canada process, I would say, at the time, we both, Oceanwide and Genworth, would have preferred to kept the Canadian business. We decided that, that wasn't the right step because of the Canadian regulatory process. We ended up, I think, selling it for a very good price. And I guess, in hindsight, we're -- Kevin Schneider and myself, Kevin was the leader on that deal, I think we feel at the end of the day, obviously, we weren't thinking about COVID-19 in 2019, but I do think that, that turned out to be, I think, a good deal for our shareholders. And ultimately, I know that in the $1.8 billion that we received for our 57% interest was certainly higher than you -- than anyone would have valued the Canadian business back in 2016 when we signed the agreement. So that's -- those would be my comments, Mark, on your question.

We'll take our next question from Joshua Esterov with CreditSights.

First, a follow-up to a combo of Ryan's and Mark's questions. Will you be looking for any sort of assurance about the additional $1.5 billion China Oceanwide intends to contribute after the deal closes? And will that also be subject to currency conversion? And then if China Oceanwide is unable to make that $1.5 billion capital contribution, what does that mean from a regulatory perspective, given that was part of the approval process for the deal?

Yes. Those are very good questions. I would say, first of all, from a Genworth shareholder perspective, I think you care -- shareholders should care most about the $2.7 billion and closing a deal at $5.43 per share. Obviously, post-closing is when -- and we do have this as part of the closing, we have to put $100 million into the New York subsidiary and $175 million to the Delaware subsidiary. And the bulk of the $1.5 billion will be used to reduce debt further. And I think that was viewed as a significant benefit for the transaction. I do think we -- the regulators continue to do their own due diligence on the transaction on Oceanwide. We do -- Oceanwide does file its financial statements regularly, so they are aware of that. And I think that they are aware of the options he has and what he said and what we've said to the regulators in terms of the $1.5 billion. And so I think they're satisfied at this point with those assurances. And look -- and again, I think from a -- the regulators' perspective, they care mostly about how the change in control impacts policyholders of the companies they regulate. So obviously, the $100 million to New York and $175 million to Delaware is important. The $1.5 billion, we haven't committed that directly into the operating companies. So I think the plan is to use -- most of that is to get our debt down. We've been -- Kelly and I have been saying for many quarterly calls, we think, given the profile of the company, obviously, it's changed -- I want to reemphasize the COVID-19 uncertainties that all of us are facing, but I do think a benefit from a regulatory perspective of all the regulators is to the extent we can close the deal, the $1.5 billion comes in, we can -- our debt now at the parent is $2.8 billion. So we can get it down into a range where that long-term dividend payers -- we don't expect dividends in 2020, as Kelly said last quarter from the MI companies given COVID-19 and given their regulators generally asking the MIs in the U.S. and Australia overall not to pay dividends. I think that over time, we do have various opportunities in terms of managing our debt. But the $1.5 billion, from day 1, I would say, I don't think the regulators would have approved the change of control if it were not for the specific $100 million, $175 million investment in the Life companies and the $1.5 billion to help Genworth and the parent reduce its overall leverage to an amount consistent with the long-term ability of the 2 operating companies. These are not taking dividends from the Life companies, so USMI and Australia. And with that $1.5 billion, we can get our debt -- you can do the math, Mark. We can get the debt down to a basis where if you look at historically, the dividend capacity of USMI in Australia, it's going to be different while COVID-19 is there, but longer term, I think we -- that's a big part of the transaction was $1.5 billion. And it was specifically negotiated with regulators at the amount, based -- and obviously, there's a lot of detail due diligence that they did and -- in terms of how all that works.