Bloomberg News

MGIC Raises $1.1 Billion Amid Bets on Mortgage Insurance

March 07, 2013

MGIC Investment Corp. (MTG:US) raised $1.1 billion selling stock and bonds as the insurer bolsters the unprofitable (MTG:US) unit that backs home loans.

MGIC sold $450 million in convertible senior notes and 135 million shares of stock for $5.15 apiece, the Milwaukee-based company said late yesterday in a statement. The shares slid 7.8 percent to $5.17 at 9:41 a.m. in New York. They closed at $5.34 on March 5, before MGIC said it was offering shares.

Chief Executive Officer Curt Culver, 60, is raising cash after a measure of risk relative to capital exceeded limits set by some regulators. MGIC is benefiting as investors bet mortgage insurers can sell profitable coverage as real estate prices rebound and the U.S. reduces its role in the housing market.

“There seems to be a broad consensus from both parties in Washington that the federal government needs to continue to reduce its role in the mortgage markets, making room for sources of private capital like the mortgage-insurance industry,” Mark DeVries, an analyst at Barclays Plc, wrote in a note.

Radian Group Inc. (RDN:US), the largest U.S. mortgage insurer, raised $689 million after commissions and expenses selling shares and notes last week. Shares of the Philadelphia-based firm have advanced (RDN:US) 57 percent this year as MGIC has nearly doubled. Arch Capital Group Ltd. (ACGL:US) reached a $300 million deal last month to buy mortgage-insurance assets from PMI Group Inc. (PPMIQ:US)

MGIC’s ratio of risk to capital at its main insurance unit was 44.7-to-1 as of Dec. 31, the insurer said Feb. 28, when it reported fourth-quarter results. The measure exceeds the 25-to-1 risk limit set by some state regulators, after the insurer was unprofitable (MTG:US) for six straight years. The shares traded for more than $70 in 2006.

Radian’s Record

Radian was unprofitable in five of the past six years, as losses from backing home loans mounted amid a real estate slump. Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. PMI filed for bankruptcy protection in 2011 and Triad Guaranty Inc. (TGIC:US) has also been forced to stop selling new policies.

Goldman Sachs Group Inc. managed the MGIC offerings. The insurer initially planned to sell 135 million shares and $350 million of notes. Underwriters have an option to purchase about 20.3 million more shares and $50 million more of notes, MGIC said.

The convertible senior notes have a 2 percent interest rate and mature in April 2020. Proceeds from the offering will be used for general corporate purposes, “which may include increasing the capital of the company’s insurance subsidiary” and boosting liquidity, MGIC said in yesterday’s statement.

To contact the reporter on this story: Zachary Tracer in New York at ztracer1@bloomberg.net

To contact the editor responsible for this story: Dan Kraut at dkraut2@bloomberg.net


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Companies Mentioned

  • MTG
    (MGIC Investment Corp)
    • $7.85 USD
    • 0.11
    • 1.4%
  • RDN
    (Radian Group Inc)
    • $13.1 USD
    • 0.02
    • 0.15%
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