Ratings Companies Should Move To Upgrade Radian Once They Complete Bond/Debt Rollover To 2017
It will be difficult to deny that the US Housing Market recovery will not be completed by 2017. In addition, Radian has $368 million cold cash to pay the February 2013 bond debt due in the amount of $79.4 million as of September 30, 2012.
The rollover of the 2015 bond in the amount of $250 million is nearly complete because, a bondholders with $167 million of bonds outstanding has already agreed to rollover their portion. I believe that any of the remaining $83 million bondholders that decide they don't want to do the deal will most likely be paid off. Radian is offering a small cash bonus for those that agree by December 14, 2012 and the new bond will carry a 3.625% increase in interest to 9%.
Some observers have said that bondholders would be crazy not accept the new deal.
So, essentially, the bond rollover is A done deal. I believe that the ratings companies, Moody's and s&p would be crazy not to upgrade Radian at least one notch.
In addition, Radian is in the process of selling the Jefferson county sewer bond reinsurance back to FGIC. The bond is currently rated (BIG) below investment grade. So, that will improve the quality of Radian Asset Assurance portfolio. It will cost $50 million but, Radian may get it's contingency capital released. They can then apply to put that capital into Radian Mortgage Guaranty adding to it's statutory capital.
Currently, Radians statutory capital ratio is 20.1 to 1 compared to Genworths 35.1 to 1. Radians NIW is projected to exceed $37 billion this year, they are writing NIW at around $4 billion a month with two months left to record, November and December. AIG is the second highest NIW with around, projected to be $29 billion for 2012.
Pushing out the bond debt 2 years indicates they don't have the funds on hand to pay it off now, they got screwed on the rate. 9% is terrible, typically that type of debt should pay well below 3%. Good grief, that was a sign of desparation.