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Radian Group (RGA) Announces Pricing of $450M Senior Notes

Zacks Equity Research

Radian Group Inc. RDN has priced $450 million worth senior notes scheduled to mature on Mar 15, 2027 at a coupon rate of 4.875% per year. The interest rate will be paid semi-annually on Mar 15 and Sep 15 every year beginning 2020.

Notably, the company has raised the size of the offering from $350 million announced earlier.

The Zacks Rank #3 (Hold) mortgage insurer expects to utilize the proceeds from the issuance along with the available cash on hand to fund tender offer to purchase 5.250% senior notes due 2020 and 7.000% senior notes due 2021, as well as to pay certain fees and expenses. The company also plans to deploy the remaining proceeds for general corporate purposes, including the redemption of 5.250% senior notes due 2020.

The issuance of new debt will increase the debt level of the company. Radian Group exited the first quarter of 2019 with debt of $1031.2 million, up 0.1% from year-end 2018 level while debt to equity ratio improved 173 basis points. However, with the issuance of the recent debt, leverage will deteriorate 1039 basis points. Nonetheless, the leverage ratio will still compare favorably with the industry average of 47.

It seems a prudent approach by the company to capitalize on the still low interest rate environment to procure funds and redeem notes of higher coupon. Though the Fed has raised interest rates, it is still low compared to the levels before the financial crisis. In fact, the Fed announced that it will not raise rates in 2019 versus its earlier expectation of two hikes in view of slowing economic growth.  

By capitalizing on this low interest rate environment, the company is attempting to reduce its interest burden and boost margin. It is also looking to reduce cost of capital, concurrently strengthening balance sheet, enhancing financial flexibility and supporting growth initiatives.

Shares of Radian Group have rallied 42.4% year to date, outperforming the industry’s rise of 11.1%. Improving new mortgage insurance business, declining claim payments and a strong capital position will help the stock retain the momentum.



Stocks to Consider

Some better-ranked stocks from the multiline insurance industry are American International Group, Inc. AIG, MGIC Investment Corporation MTG and Cigna Corporation CI.

AIG provides insurance products for commercial, institutional, and individual customers in North America and internationally. The company delivered positive surprise of 47.66% in the last reported quarter. The stock sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

MGIC Investment provides private mortgage insurance, other mortgage credit risk management solutions, and ancillary services to lenders and government sponsored entities in the United States. The company delivered positive surprise of 10.53% in the last reported quarter. The stock sports a Zacks Rank #1.

Cigna provides insurance and related products and services in the United States and internationally. The company delivered positive surprise of 4.28% in the last reported quarter. The stock carries a Zacks Rank #2.

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