Radian’s (RDN) net income exploded in the first quarter of 2014, rising nearly $170 million from the fourth quarter of 2013. The company reported a net income of $203 million or $0.94 per diluted share in the first quarter of 2014, up from $36.4 million last quarter.
The good news didn’t stop there for Radian. The company also announced the acquisition of Clayton Holdings, a due diligence firm. Radian will pay $305 million in cash to purchase the company. Radian will repay all of Clayton’s outstanding debt as part of the purchase agreement.
That represents a massive growth from the company’s first quarter earnings last year, when the company reported a loss of $187.5 million, or $1.30 per diluted share. That loss included which included combined losses from the change in fair value of derivatives and other financial instruments of $173.3 million and net losses on investments of $5.5 million.
The book value per share of $6.10 as of March 31, 2014.
The company reports that the increase in income was the result of gains from the change in fair value of derivatives and other financial instruments of $50.8 million and net gains of investments of $64.5 million.
“Radian’s strong financial performance in the first quarter along with today’s acquisition announcement represent our team’s success in executing on our strategic vision – to emerge from the downturn as a stronger company and to grow and diversify for future success,” said Radian’s chief executive officer S.A. Ibrahim.
“We’ve had outstanding success in strengthening our mortgage insurance franchise and returning to profitability. We look forward to continuing down this path, while also taking a step to help diversify our revenue stream and position Radian for new opportunities as the U.S. housing market evolves.”
The company’s adjusted pretax operating income for the first quarter was $91.1 million, consisting of $101.3 million of income from the mortgage insurance segment and a loss of $10.2 million from the financial guaranty segment.
This compares to an adjusted pretax operating loss for the quarter ended March 31, 2013, of $15.2 million, consisting of a loss of $11.4 million from the mortgage insurance segment and a loss of $3.8 million from the financial guaranty segment.
Radian Group expects to finance the entire purchase price and related expenses, as well as redeem Radian’s $54.5 million principal amount of outstanding debt due in June 2015, through public issuances of both debt and equity.
In 2013, Clayton had annual revenue of $135.0 million and net income of $9.1 million. Included in expenses was the non-cash amortization of intangible assets of $10.8 million. From an accretion/dilution standpoint, the company expects that the transaction will be approximately breakeven in 2014, and will be modestly accretive excluding the non-cash amortization of intangible assets.
Radian expects the transaction to close during the summer of 2014. After the transaction is closed, Clayton will become a subsidiary of Radian Group. The company expects cash flows from Clayton to “provide an unregulated source of funds to Radian Group.”
Clayton is headquartered in Shelton, Connecticut, and employs approximately 700 people.
“The future looks bright for Clayton and we are delighted to become part of the Radian team,” said Clayton’s chief executive officer Paul Bossidy. “Radian and Clayton are leaders in our respective industries, and we look forward to working together to create new opportunities for growth and expansion that we simply could not achieve on our own.”