PMI, MGIC Bonds Climb as U.S. Mortgage Insurers Offer Stock

Bonds of mortgage insurers PMI Group Inc. and MGIC Investment Corp. rose after the companies offered stock and convertible notes.

PMI’s bonds jumped after the Walnut Creek, California-based company said yesterday it plans to sell $600 million of convertible notes and common stock. MGIC notes reached the highest in almost three years after the biggest U.S. mortgage insurer sold $700 million of shares last week.

Mortgage insurers’ access to capital markets “increases their chances of survival” and is a sign of investors’ increased tolerance for risk, said Jim Ryan, an insurance analyst with Morningstar Inc. in Chicago. Foreclosures are predicted to climb to 4.5 million this year from 2.8 million in 2009, according to RealtyTrac Inc., an Irvine, California-based research firm.

“As we’ve gotten little bit away from the brink of disaster, the risk tolerance has risen,” Ryan said in a telephone interview. “Whether they survive or not depends on a lot factors that are outside” the mortgage insurers’ control.

PMI’s 6 percent senior unsecured bonds due in 2016 rose 3 cents on the dollar to 86 cents to yield 8.9 percent as of 1:15 p.m. in New York, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. That’s the highest since May 8, 2008.

The third-largest U.S. mortgage insurer is offering $200 million of convertible notes due in 2020 and $400 million of common stock, PMI said yesterday in a statement.

‘Game Changer’

MGIC’s 5.375 percent senior unsecured notes jumped 4 cents on the dollar to 91 cents to yield 7.39 percent on April 21, Trace data show, after the Milwaukee-based company sold $700 million of shares and $300 million of 5 percent convertible senior notes due in 2017. The senior unsecured debt traded at its highest since July 2007.

“As was the case with MTG, PMI’s ability to pull off a capital raise is a game changer for the credit,” David Havens, managing director in credit trading at Nomura Securities International Inc. in New York, said in a client note. “That said, a lot of things need to break in PMI’s favor in order for the company to succeed over the longer term.”

The survival of the mortgage insurers depends upon a recovering economy, lender forgiveness and government programs such as the Home Affordable Modification program, or HAMP, Ryan said. HAMP is part of President Barack Obama’s effort to stem foreclosures.

PMI’s first-quarter net loss widened to $157 million from $115.3 million a year earlier, the insurer said yesterday in a separate statement. Its policyholder position fell below the minimum capital-adequacy requirements by an estimated $57.4 million and its risk to capital will be about 26.6 to 1 as of March 31. As of Dec. 31, the company’s policyholders’ position exceeded the minimum by $63.9 million and risk to capital was 22.1 to 1, according to the statement.

“PMI reported that it had finally breached its regulatory minimum capital level,” Havens said. “A successful equity offering would come in mighty handy right now.”

Radian Group Inc. is the second-largest U.S. mortgage insurer.

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