NEW YORK (AP) -- Standard & Poor's Rating Services on Friday raised its ratings on MGIC Investment Corp. and its subsidiaries based on the mortgage insurance company's plans to launch a major stock and bond offering. A second rating agency, Moody's Investor Service, put the company's rating on review for a possible upgrade.
S&P raised its insurer financial strength ratings on Mortgage Guaranty Insurance Corp. and its subsidiary MGIC Indemnity Co. one notch to "B'' from "B-." At the same time it raised its unsolicited rating on parent company MGIC Investment Corp. one notch to "B-" from "CCC+". The ratings remain in junk-grade territory with a "Stable" outlook.
The move follows MGIC's announcement Tuesday that it is selling 135 million shares of common stock and $350 million of convertible senior notes in a public offering. It offered underwriters the option to buy an additional 15 percent of the number of shares offered and an additional $50 million of the notes. The company plans to use the proceeds for general corporate purposes, including boosting the capital of its insurance unit Mortgage Guaranty Insurance Corp.
S&P estimates that if the over allotments are fully exercised, the offering will raise more than $1.2 billion in additional capital for the company. Ron Joas, a credit analyst for S&P, said this would mitigate, if not eliminate, the agency's concerns about a regulatory takeover of the company.
Mortgage insurers got battered when the housing bubble burst, as mortgage defaults skyrocketed and claims spiked. Because the fortunes of mortgage insurers are tied closely to those of the housing market, rising home sales mean more business for the companies that back the mortgages used to buy them. U.S. home sales have been gradually rising in recent months.
Mortgage insurers like MGIC are seizing on this willingness of investors to believe in the industry again as an opportunity to get them to invest in stock or debt.
The additional cash resources from the offering give the company some financial flexibility, but S&P believes the company's financial profile may remain under pressure, due to the possibility of losses from new delinquencies.
Moody's said it has placed Mortgage Guaranty Insurance Corp.'s junk-grade "B2" financial strength rating and the debt ratings of its parent corporations on review for possible upgrade. The rating agency also affirmed the "Ba3" financial strength rating of MGIC Indemnity Corp. and changed its outlook to "Stable" from "Negative" as a result of the offering.
The rating agency believes the Milwaukee company will apply the bulk of the proceeds toward its flagship insurance operation to improve its capital and liquidity position.
Shares of MGIC investment fell 1 cent to close at $4.91. Its shares have nearly doubled in price in the last two weeks.