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Genworth explains promissory notes issuance to Axa

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Genworth Mortgage Insurance Australia says Axa does not have “any ability to control votes attached to secured shares” in the business after the French insurer was issued promissory notes that are backed by a portion of its US-based parent’s stockholding.

Last week Genworth Financial announced it had pledged 19.9% of its 52% share in the Australian lenders’ mortgage insurer (LMI) to secure the notes, as part of an agreement to settle a court dispute with Axa.

“The promissory note will terminate upon the payment in full by [Genworth Financial] of all the obligations by the due dates,” Genworth Mortgage said in an investor update. “The security does not give Axa any ability to control votes attached to secured shares in the company unless the security becomes enforceable.”

Genworth Mortgage also says it is “not party to the litigation or the settlement deed, promissory note or security agreement”.

In the dispute with Axa, the UK High Court last year ruled Genworth Financial must pay the French insurer for losses incurred in mis-selling payment protection insurance (PPI). The dispute involved losses incurred from mis-selling complaints for PPI underwritten by two companies that Axa had bought from Genworth Financial.

In agreeing to accept the promissory note as collateral, Axa will receive deferred cash payments of £317 million ($569 million) in two installments, with the first due on June 30 2022 and the final one three months later on September 30.

Genworth Financial will also pay a significant portion of all future mis-selling losses incurred by the French insurer. Axa will invoice Genworth every quarter the amount to be paid.

“Genworth also has agreed to make certain mandatory prepayments in the event that it executes certain debt or equity transactions or receives subsidiary dividends from its mortgage insurance companies,” the US financial services firm said.