As details of a MGIC/Radian merger continue to emerge, Fitch Ratings said yesterday that it had placed the ‘AA+’ insurer financial strength (IFS) ratings of Mortgage Guaranty Insurance Corporation (MGIC) and the ‘A+’ senior debt rating of MGIC Investment Corporation (MGIC Investment) on Rating Watch Negative as a result of the announced merger plan between MGIC Investment and The Radian Group Inc. While stressing the positive potential outcome of a merger, Fitch said its ratings action reflected an increase MGIC’s risk profile relative to historical norms. As a result of the announcement, Fitch also affirmed the ‘AA’ IFS ratings of Radian Guaranty Inc. (Radian Guaranty), Radian Insurance Inc., Amerin Guaranty Corp. and Radian Europe Ltd., the mortgage insurance subsidiaries of Radian. Fitch also affirmed the ‘AA’ IFS ratings of Radian Asset Assurance Inc. (RAA) and subsidiary Radian Asset Assurance Ltd. (RAAL), the financial guaranty subsidiaries of Radian. The Rating Outlook for RAA and RAAL contnues to remain Negative, Fitch said. MGIC-Radian is expected to conduct operations using the mortgage insurance platform of MGIC, the capital markets platform of Radian Guaranty and the financial guaranty platforms of RAA and RAAL.
According to Fitch, divestitures associated with the merger are expected to include the reduction in combined equity ownership of the two companies’ stake in their financial services companies, Credit-Based Asset Servicing and Securitization (C-BASS) and Sherman Financial Group LLC. Before consummation of the merger, Fitch said it expects that both MGIC and Radian will reduce their combined ownership to less than 50 percent in both C-BASS and Sherman. C-BASS is the parent company of Houston-based Litton Loan Servicing, one of the nation’s largest subprime mortgage servicing operations. Sherman Financial is a distressed consumer debt collections specialist. MGIC and Radian indicated to Fitch that they expect lost earnings resulting from the reduced ownership in C-BASS and Sherman, offset by a lower level of outstanding capital.