PHILADELPHIA, PA—Radian Guaranty Inc., themortgage insurance subsidiary of Radian Group Inc., is selling thecompany's bond insurance business for $810 million to help meetcapital requirements for remaining in the mortgage insurancebusiness.

|

Radian has entered into a Stock Purchase Agreement to sell 100%of the issued and outstanding shares of Radian AssetAssurance Inc., Radian's financialguaranty insurance subsidiary, to Assured GuarantyCorp., a subsidiary of Assured GuarantyLtd., for a purchase price of approximately $810 million.The purchase price is payable in cash consideration on the closingdate. The Stock Purchase Agreement allows for a complete transferof Radian Asset's $19.4 billion in net paroutstanding to Assured Guaranty Corp. as ofSeptember 30, 2014. The company expects to complete the sale ofRadian Asset in the first half of 2015, subject tosatisfaction of customary closing conditions including regulatoryapprovals.

|

“While Radian Asset has been an important part of our historyand our success, we are committed to streamlining our business andaligning our strategy toward the mortgage and real estate markets,”says Radian chief executive officer S.A.Ibrahim. “We look forward to simplifying Radian's focus onour core strengths, which we believe will pave the way for futuretop-line growth.”

|

Goldman Sachs & Co. is acting as financial advisor on thesale of Radian Asset.

|

As previously disclosed, the Federal Housing FinanceAgency issued proposed new Private Mortgage InsurerEligibility Requirements (PMIERs) in July 2014. The public commentperiod for the proposed PMIERs ended in September 2014, and Radianexpects the final PMIERs to be published sometime in the first halfof 2015, with an effective date 180 days after publication. Theproposed PMIERs state that, subject to the approval of Fannie Maeand Freddie Mac, private mortgage insurers may be granted atransition period of up to two years from the publication date tocomply with the PMIERs' financial requirements.

|

“This agreement marks an important milestone as we prepare forfinalization of the proposed PMIERs in 2015,” says Ibrahim. “Whilewe expect to fully comply, the sale of RadianAsset will help to accelerate our ability to do so.”

|

The financial requirements included in the proposed PMIERsexclude from Available Assets (as defined in the PMIERs) certainsubsidiary capital, including Radian Guaranty'scapital that is attributable to its ownership of RadianAsset. As a result, Radian has beenpursuing a plan to monetize Radian Asset,including a sale of the company, in order to increaseRadian Guaranty's Available Assets and betterposition Radian Guaranty to comply with thePMIERs' financial requirements. While the sale of RadianAsset is expected to result in a GAAP and statutory lossin the fourth quarter of 2014 (the GAAP carrying value ofRadian Asset was $1.25 billion and statutorysurplus was $1.03 billion as of September 30, 2014), theconsummation of the transactions is expected to increaseRadian Guaranty's Available Assets byapproximately $790 million. Radian's book valueper share at September 30, 2014, was $9.08 and the valuationallowance against the company's deferred tax asset (DTA) per sharewas $4.37. The loss related to the sale of RadianAsset is not expected to negatively impact the company'spreviously disclosed expectations regarding the future reversal ofits DTA valuation allowance.

|

Assuming that the final PMIERs are published on June 30, 2015,with an effective date of December 31, 2015, the company currentlyestimates that, after giving effect to the net proceeds from thetransactions contemplated by the Stock Purchase Agreement andRadian's available holding company cash balancesof approximately $770 million, Radian Guaranty'sprojected net shortfall in Available Assets would be approximately$400 million as of December 31, 2015. Additionally, the companyfurther projects that Radian Guaranty would haveno net shortfall in Available Assets by June 30, 2017, which is theassumed end of the two-year transition period.

|

Radian Guaranty expects to fully comply withthe PMIERs within the applicable transition period, without a needto raise additional capital. While the proposed PMIERs have beenthe subject of significant comment from private mortgage insurers,other industry participants and regulators,Radian's projections are based on the proposedPMIERs in their current form, without giving effect to anypotential changes to the financial requirements. In addition, theseprojections do not take into consideration the company's expectedability to leverage other options, such as pool insurancecommutations and additional reinsurance to achieve complianceearlier than June 30, 2017.

Want to continue reading?
Become a Free ALM Digital Reader.

  • Unlimited access to GlobeSt and other free ALM publications
  • Access to 15 years of GlobeSt archives
  • Your choice of GlobeSt digital newsletters and over 70 others from popular sister publications
  • 1 free article* every 30 days across the ALM subscription network
  • Exclusive discounts on ALM events and publications
NOT FOR REPRINT

© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.

Steve Lubetkin

Steve Lubetkin is the New Jersey and Philadelphia editor for GlobeSt.com. He is currently filling in covering Chicago and Midwest markets until a new permanent editor is named. He previously filled in covering Atlanta. Steve’s journalism background includes print and broadcast reporting for NJ news organizations. His audio and video work for GlobeSt.com has been honored by the Garden State Journalists Association, and he has also been recognized for video by the New Jersey Chapter of the Society of Professional Journalists. He has produced audio podcasts on CRE topics for the NAR Commercial Division and the CCIM Institute. Steve has also served (from August 2017 to March 2018) as national broadcast news correspondent for CEOReport.com, a news website focused on practical advice for senior executives in small- and medium-sized companies. Steve also reports on-camera and covers conferences for NJSpotlight.com, a public policy news coverage website focused on New Jersey government and industry; and for clients of StateBroadcastNews.com, a division of The Lubetkin Media Companies LLC. Steve has been the computer columnist for the Jewish Community Voice of Southern New Jersey, since 1996. Steve is co-author, with Toronto-based podcasting pioneer Donna Papacosta, of the book, The Business of Podcasting: How to Take Your Podcasting Passion from the Personal to the Professional. You can email Steve at [email protected].