(Updates with regulator’s testimony in sixth paragraph.)
Nov. 8 (Bloomberg) -- PMI Group Inc., the mortgage insurer whose main unit was seized by regulators last month, won’t default on more than $700 million in bonds if a judge puts PMI back in charge, Chief Executive Officer L. Stephen Smith said.
The company’s plan to revive itself, which state regulators have rejected, would allow PMI Group to raise money, start a new unit and avoid defaulting, Smith testified today in state court in Phoenix. Smith is trying to persuade a judge to undo the seizure and let PMI regain control of its main operating unit, PMI Mortgage Insurance Co.
PMI needs as much as $200 million to start writing new mortgage insurance policies through a new venture, according to court records. Smith said today that no investors have agreed to fund the proposed operation.
“Still, even this week, people were calling me asking if this was still possible,” Smith told Superior Court Judge Richard J. Gama. The judge said he would issue a ruling “soon.”
Arizona Director of Insurance Christina Urias took control of the unit last month on an interim basis until a formal hearing could be held on the company’s future, according to court papers. Urias directed claims to be paid at 50 cents on the dollar after losses on mortgage defaults drained capital. The operation was already prohibited from selling new coverage.
In court today, Urias said PMI’s loss projections were consistently off. The company estimated its liabilities at $558 million, while the state’s estimate was about $1 billion, Urias said.
The company “is insolvent and will be for the foreseeable future and the only remedy is to protect the policyholders” by seizing PMI Mortgage, Urias said
After the takeover, PMI announced the hiring of financial adviser Evercore Partners Inc. and the law firms Sullivan & Cromwell LLP and Young Conaway Stargatt & Taylor LLP, to help restructure the Walnut Creek, California-based insurer. PMI has posted 16 straight quarterly losses.
PMI Group is seeking to regain control of the unit until at least January, when a court hearing to confirm the seizure is scheduled.
Should the state remain in control of PMI Mortgage until January, it will be too late to save the company, PMI Group attorney William Maledon said in court. The delay would do a “vast amount of damage,” Maledon said.
The case is State of Arizona v. PMI Mortgage Insurance Co., CV2011-018944, Arizona Superior Court, Maricopa County, (Phoenix).
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