Essent Group Ltd. (ESNT:US), the mortgage insurer backed by Goldman Sachs Group Inc. and billionaire George Soros, added Wells Fargo & Co., its largest customer, to the group of underwriters for an initial public offering.
Wells Fargo, the biggest U.S. home lender, accounted for 17 percent of Essent’s sales in the first six months of this year, according to a regulatory filing today from the Bermuda-based insurer. The firm also added Bank of America Corp. (BAC:US), the third-largest mortgage originator, as an underwriter.
Mortgage insurance, which covers losses when borrowers default and foreclosures fail to recoup costs, is typically selected by originators. Essent was founded amid the financial crisis, when record homeowner defaults pushed some rivals from the business. As home prices rise, firms that survived are attracting investors looking for ways to bet on housing.
“New capital would help fund Essent’s continued growth,” Helen Remeza, an analyst at Moody’s Investors Service, said in a Sept. 23 research note. “A capital raise could also further differentiate Essent Guaranty from its more weakly capitalized peers with legacy exposures.”
Wells Fargo (WFC:US) is the only customer to account for more than 10 percent of Essent’s revenue, according to the filing. New York-based Goldman Sachs is leading the offering, with JPMorgan Chase & Co. (JPM:US), the No. 2 mortgage lender, and Barclays Plc.
Fees for IPO underwriters have averaged more than 5 percent this year in the U.S., according to data compiled by Bloomberg. Bank of America, based in Charlotte, North Carolina, is the top underwriter this year, followed by Goldman Sachs and JPMorgan.
Wells Fargo has been increasing its market share in U.S. IPOs this year. The San Francisco-based bank ranks ninth, compared with 11th in 2012, the data show. Janice Walker, a spokeswoman for Essent at JD Walker Communications LLC, had no comment. Wells Fargo’s Jessica Ong declined to comment.
Goldman Sachs owns an 11 percent stake in Essent, as does an entity tied to Soros Fund Management LLC. JPMorgan controls 8.9 percent. Global Atlantic Financial Group, the insurer divested by Goldman Sachs this year, also owns 11 percent. Mark Casale, the former executive at mortgage insurer Radian Group Inc. (RDN:US) who founded Essent, owns 3.9 percent of the shares.
Essent’s stockholders’ equity was $371.2 million as of June 30, compared to $170.1 million a year earlier. The insurer has drawn $438.3 million of a $600 million commitment from its backers, according to the filing.
The document lists a $287.5 million price for the offering, a placeholder amount used to calculate registration fees. A share price isn’t listed.
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