that's because it is a great move by them - they isolated the usmi risk, so they can BK that company if necessary (especially if/when RMIC gets seized), this is exactly what GNW should have done, instead they let the company get dragged down with usmi, but there is always hope...
wow, this should be very instructive for GNW and I imagine an exact prelude of an entire MI spin, just curious about ORI doing it as a taxable event...seems strange. Will be interesting to see how much new money and at what value they ascribe to an entity in run off. We know that $10 bill of NIW creates npv of $75 million or so, if you are not writing new biz you must see value in the ability to do it in the future...very interesting.
they need to relinquish enough control to remove the usmi businesses as subs of the holdco, to get out from under the bond covenants, i doubt nard paid a dime for his shares (well, maybe a dollar to make it legit), i expect RMIC (the sub) will be seized by NC by the end of the year, they won't have a choice given the extent of the losses to come.
to keep it tax free, they have to own 80% at the time of the spinoff. as they own 79% after the equity injection, the taxable status was obviously the intent. I bet they are taking a capital loss on the transaction and want to utilize the tax loss.
What's really interesting is how much private equity money is finding its way into the US MI business. Essent, NMI holdings, and now the equity injection into ORI. Plus the hint of buyer interest in RDN in today's investor letter (which could be legit, or a pump attempt).
Notice the negative shareholder's equity in ORI's MI, and compare to GNW's 1.2B in positive US MI shareholder's equity.
i don't think any private equity found its way to ori's mi business, i think they gave those shares to the executives, and just enough to escape consolidating the business on their balance sheet, as for rdn, i highly doubt that is legit, put it this way, in 2009 Essent raised $500M, and this year NMI raised $550M, amounts that exceed the equity valuations of RDN and probably what this ORI spinoff could be purchased for, and close to mtg's equity valuation, bottom line is the legacy risk is a black hole that no one wants to touch (including the litigation risk and the risk of rescissions which have not yet been litigated but are not past their statute of limitations to be litigated), that's why the mi's haven't been able to raise capital in two years, since the extent of their losses became clear to the dumb professional investor community (they were always clear to me), gnw needs to dump usmi ASAP before it is too late.
Here's their rationale, seems like ORI is again AHEAD of the game...
Recessionary conditions in U.S. housing finance beginning in 2007 have erased the long-term profitability of the MI and CCI insurance lines and led to substantial losses. As a result, capital funds identified with these lines at year-end 2006 have been fully depleted. While Old Republic maintains a long-term strategic interest in these lines, it has stopped additional capital funding for them since they no longer meet its enterprise risk management disciplines and business diversification objectives. These circumstances also reinforce Old Republic's resolve to: 1) safeguard policyholders' interests in its general (property and liability), title, and life & health insurance subsidiaries by maintaining long-established protective barriers around these companies; and 2) protect economic values inuring to the Company's debt holders and shareholders.