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Radian Group Inc. Message Board

  • girthner21 girthner21 Nov 10, 2011 10:49 PM Flag

    Jefferson County Bankruptcy

    Radian stated they have put aside only 12 million reserve on well over 200 million in par insured, not sure how the BK will play out, but I'd guess they are under-reserved here as well. I am surprised no one has mentioned this.

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    • BarClays published a report a few weeks ago. Not a big deal and good opportunity to buy at the dip.

    • this is from the Q, i am no expert on fg insurance but it seems the 9.6M in acceleration is only a portion of their total exposure.

      We have reinsured several primary financial guaranty insurers' obligations with respect to $227.6 million in net par outstanding at September 30, 2011, related to Jefferson County, Alabama (the "County”) sewer bonds (the "Obligations"). We began paying claims related to the Obligations in 2008, and have paid $20.8 million of claims, net of salvage, on this transaction through September 30, 2011. The County's sewer system operations have generated sufficient revenues since the beginning of 2009 to pay interest on its outstanding debt, as well as regularly scheduled annual installments of principal in February of 2010 and 2011, primarily due to historically low prevailing interest rates on the County's variable rate obligations. However, we believe a number of factors continue to adversely affect the performance of our insured obligations, including the County's highly leveraged capital position, the sub-par performance of the sewer facilities and the possibility that the County will be unable to generate sufficient revenues to make regularly scheduled payments of principal and interest on the Obligations if interest rates increase.
      The County is suffering from a liquidity crisis occasioned, in part, by court decisions invalidating an occupational tax, which contributed approximately $70 million (or one-third of the County's operating revenues) to finance the County's operations unrelated to the sewer system operations. If the County were unable to replace these tax revenues, an additional strain would be placed on the County's finances. Currently, the County cannot raise taxes or fees without state approval and the majority of its tax revenues are for specific purposes. County officials have stated publicly that the failure to replace the tax would leave the County with no choice but to file for bankruptcy.

      On September 16, 2011, the County voted to accept an agreement in principle that, if implemented, would result in the refinancing of the County's sewer bonds by July 2012, and the settlement of outstanding claims and litigation with respect to the outstanding bonds. The agreement would provide for the refinancing of approximately $2.1 billion of the $3.2 billion in bonds outstanding, with banks, and to a lesser extent, existing bondholders and guarantors, contributing the difference. The agreement in principle is, and the definitive agreement is expected to be, subject to the satisfaction of numerous conditions, including the enactment of a series of legislative measures by the Alabama State legislature designed to support the refinancing. As part of the agreement, the County would agree to the implementation of phased-in sewer utility rate increases. It has been reported that the County would seek legislative assistance in addressing its fiscal challenges resulting from the loss of its occupational tax in the same session where the sewer refinancing legislation would be considered. The Governor of Alabama has not yet called a special session for this purpose. We cannot provide any assurance that the parties will reach a definitive agreement, and if they do, that all the conditions required for its implementation will be satisfied. The failure of the parties to reach a definitive agreement or to implement such an agreement could result in the County filing for bankruptcy.
      While the full potential impact of a bankruptcy filing is uncertain at this time, if the County were to file for bankruptcy, the trustee for a portion of the Obligations, would have the right to accelerate their payment. This would likely result in direct claims of up to $9.6 million of our reinsurance exposure.
      As of September 30, 2011, we had an $11.2 million potential claim liability for all of our exposure on this transaction.

    • very good point, i was wondering about that too last night, there was no mention of it on the last call, in q1 they mentioned they added 5.6M, but i am guessing that only considered the deal the creditors made with jeffco, not a bk filing

      During the first quarter, we booked modest incremental losses on a handful of public finance and structured finance transactions, including approximately $5.6 million in incremental reserves related to Jefferson County.

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