Essent Group Ltd., the mortgage insurer backed by JPMorgan Chase & Co. and Goldman Sachs Group Inc., surged in its debut after raising $335 million in the first initial public offering of a U.S. home-loan guarantor in almost two decades.
Essent and some investors sold 19.7 million shares for $17 apiece, according to data compiled by Bloomberg, above the previously announced range of $13.50 to $15.50. The insurer rose 24 percent to $21 at 4 p.m. in New York, giving it a market value of $1.75 billion.
Started during the real-estate bust, Essent is benefiting from a revival of interest in housing-related investments as home prices recover. Almost half the industry was forced out of the business by losses, while survivors Radian Group Inc. and MGIC Investment Corp. sold stock and debt this year to replace capital lost in the slump.
Essent “is the pure play way to invest in high ROE, low loss-content private mortgage insurance,” Jack Micenko, an analyst at Susquehanna International Group LLP, said in a research note before the offering, using the abbreviation for return on equity. “Since entering the PMI market in mid-2010, ESNT has grown exponentially as others have exited.”
Mortgage insurers cover losses when homeowners default and foreclosures fail to recoup costs. The policies are typically required when buyers pay less than 20 percent of the cost of a home up front. Essent insured $16.6 billion of home loans in the first nine months of this year, generating net income of $46.4 million, compared with a loss in the same period of 2012.
No. 5 Seller
The company had about a 12 percent share of the traditional private mortgage insurance market in the first half of this year, making it the No. 5 seller, according to Inside Mortgage Finance. The top seller, United Guaranty, is owned by American International Group Inc.
NMI Holdings Inc., a mortgage insurer that began selling coverage this year, has also filed for an IPO. The Emeryville, California-based company counts Kyle Bass, BlueMountain Capital Management LLC and a Carlyle Group LP hedge fund among its investors.
Old Republic International Corp. said on Oct. 24 that it would revive its mortgage insurer by raising money from capital markets, after ceasing sales of new coverage in 2011 when funds ran short.
Private firms provided a majority of mortgage insurance before the crisis, while U.S. government entities led by the Federal Housing Administration sold more amid the crash. The private companies have regained share as the U.S. works to scale backs its mortgage-insurance role.
In the 12 months through August, home prices in 20 U.S. cities increased 12.8 percent, the biggest jump in seven years, according to the S&P/Case-Shiller index. That’s helped Milwaukee-based MGIC’s U.S. mortgage-guaranty unit post profits this year.
Essent Chief Executive Officer Mark Casale said he expects the company to benefit from an increase in mortgage originations tied to home sales, even as higher interest rates limit the amount of loans that are refinanced.
“We’re pretty positive around originations,” Casale, a former Radian executive, said in a phone interview today. The market “will continue to grow the next few years.”
Goldman Sachs will own about 7 percent of the company after the sale if underwriters exercise their overallotment option, the prospectus shows, while JPMorgan’s Aldermanbury Investments Ltd. will own 5.4 percent. George Soros’s Valorina LLC will own an 8.7 percent stake, while Pine Brook Road Partners will be the company’s largest shareholder with 17.5 percent.
Goldman Sachs, JPMorgan and Barclays Plc led the offering. Essent is listed on the New York Stock Exchange under the symbol ESNT.