The ongoing stress at Radian’s (RDN) mortgage insurance units and its constrained liquidity position prompted Moody’s Investors Service (MCO) to downgrade the insurer’s senior debt rating to ‘Caa2’ from ‘Caa1.’
Furthermore, the ratings giant warned that the insurer could fail to meet senior debt obligations due in the next few years.
Any rating in the ‘Caa1’ through ‘Caa3’ category is considered poor quality and high risk, going from Caa1 to Caa2 means the insurer inched closer to the default-risk category.
Moody’s noted Radian has unrestricted cash and liquid investments of approximately $350 million.
“Since dividends from Radian Guaranty are unlikely for the foreseeable future given its weak regulatory capital position, Moody’s believes that the holding company may not be able to meet its senior debt obligations, $103.9 million 2013 senior debt, $250 million 2015 senior debt, and $450 million convertible senior debt due in 2017, and that debt holders could potentially face material losses,” the ratings firm said.
The ratings giant noted, “Moody’s views the recent Radian tender auction for $146 million of its 2013 senior debt at 90% of par a distressed exchange given the debt’s yield to maturity combined with the company’s untenable capital structure.”
Overall, Moody’s maintains a negative ratings outlook on Radian due to uncertainty about mortgage insurance losses and the firm’s dependence on regulatory and counterparty forbearance.
Still, the ratings agency said Radian could experience an upgrade if it experienced the beneficial effects of an improving housing market, lower insurance mortgage losses, an injection of capital that improves capital adequacy and more clarity about regulatory and market drivers that would drive an increase in mortgage insurance demand.
