Radian Secures Waiver Over Ratings, But Sees Key Credit Facility Frozen
Radian Group Inc. (RDN) said Thursday morning that it had entered into a waiver agreement with its lenders under its core credit facility, giving it a temporary suspension of a key ratings covenant that required the mortgage insurer to maintain an unspecified minimum rating with major ratings companies. The suspension will be in effect until the end of April as the company and its creditors look to hammer out a formal amendment to credit terms, it said in a press statement. The waiver, however, effectively freezes any further borrowing for the mortgage insurance giant. Along with three other major mortgage insurers, Radian's key insurer financial strength rating was cut below the critical AA- threshold earlier this week by Standard & Poor's, who said it now expected housing price declines to be steeper than originally projected. Larger price declines usually translate into both higher claims and greater losses on claims for private mortgage insurers. Both Fannie Mae and Freddie Mac generally require mortgage insurers to maintain at least a AA- rating level in order to remain a top-tier, approved insurer on the loans they purchase. Radian said it sought temporary relief of the ratings covenant despite the fact that it was not currently breaching the terms of its credit agreement. Radian shares have been on a roller coaster this week, between the ratings downgrade at S&P and earlier analyst comments suggesting the insurer was taking the right steps to improve its book of business. An Associated Press report on Monday cited a UBS analyst's report suggesting that Radian's recent move to exit certain areas of business and reprice certain core products would benefit the insurer in the long term. For more information, visit http://www.radian.biz. Disclosure: The author owned no positions in RDN when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.