MGIC Offers Stock, $350 Million in Notes to Bolster Insurer
MGIC Investment Corp. (MTG), the third- largest U.S. private mortgage insurer, said it’s selling common stock and notes, and may use funds to bolster its unprofitable unit that backs home loans.
MGIC has begun an offering for 135 million common shares and $350 million in convertible senior notes due in 2020, the Milwaukee-based company said today in a statement. The stock offering would raise about $721 million at today’s closing price of $5.34.
Investors are committing more funds to private mortgage insurers as real estate prices rebound and the U.S. seeks to limit its role in the housing market. Arch Capital Group Ltd. (ACGL) reached a $300 million deal to buy mortgage insurance assets last month. Radian Group Inc. (RDN), the largest mortgage insurer, raised about $689 million last week, after commissions and expenses, by selling stock and debt.
“There is a significant amount of capital interested in our industry,” MGIC Chief Financial Officer Michael Lauer said on a conference call with analysts after the Radian offering.
MGIC gained 10 cents to $5.44 at 5:11 p.m. in New York and has doubled this year through today’s close. The insurer traded for more than $60 a share in 2006 before the housing slump. Radian, based in Philadelphia, has rallied 72 percent this year.
Goldman Sachs Group Inc. (GS) is managing the MGIC offerings. Underwriters have the option to buy as much as an additional $50 million in notes and 15 percent of the shares offered.
Arch Capital, based in Bermuda, said Feb. 8 that it’s buying assets from bankrupt insurer PMI Group Inc. (PPMIQ) to enter the mortgage-guaranty business. Mortgage insurers cover lenders’ losses when homeowners default and foreclosures fail to recoup costs.
The cost to protect MGIC bonds plunged. Five-year credit- default swaps on MGIC’s debt dropped 141.3 basis points to 479.8 basis points as of 4:25 p.m. in New York, according to data provider CMA, which is owned by McGraw-Hill Cos. and compiles prices quoted by dealers in the privately negotiated market. That’s the lowest since May 2011.
Credit-default swaps, which typically fall as investor confidence improves, pay the buyer face value if a borrower fails to meet its obligations, less the value of the defaulted debt. A basis point equals $1,000 annually on a contract protecting $10 million of debt.
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