MGIC, Radian Merger In Doubt

Earlier in the week, MGIC Investment Corp. said it believed it was no longer obligated to complete its pending merger with Radian Group Inc., in light of the previously-announced impairment of investments by both Radian and MGIC in Credit-Based Asset Servicing and Securitization (C-BASS):

MGIC Investment Corporation … announced that it has advised the New York Insurance Department today that it is the preliminary assessment of MGIC’s management that MGIC is not obligated to complete its pending merger with Radian Group Inc. in light of the C-BASS impairment announced last week.

Both Radian and MGIC originally announced the merger in February. Both own a stake in C-BASS, so it’s interesting to see MGIC citing C-BASS impairments as a reason to potentially call off the merger.

Radian, to say the least, doesn’t agree with MGIC’s suddenly cold feet:

We do not believe the impairments related to C-BASS LLC affect MGIC’s obligation to go forward with the merger agreement. We note that both MGIC and Radian own 46% of C-BASS, and both companies announced impairments last week. Radian is not aware of any developments that would impact MGIC’s obligation to close the merger.

Fitch weighed in on the matter earlier this morning as well, saying that the pending merger — or lack of one — would not be likely to affect either company’s rating beyond where they currently stand. In that regard, Radian clearly has more to lose should the deal fall through: Fitch has maintained a negative outlook on the insurer since 2005, reflecting what Fitch characterized as “the challenges faced by the subsidiaries of operating in the niche sector as an ‘AA’ rated company.”