Goldman-to-Soros Backed Mortgage Insurer Essent Files for IPO
Essent Group Ltd., the mortgage insurer backed by investors including Goldman Sachs Group Inc. and George Soros, filed for an initial public offering as investors pour capital into companies that guaranty home loans.
Goldman Sachs, JPMorgan Chase & Co. (JPM) and Barclays Plc are managing the share sale, Bermuda-based Essent said yesterday in a regulatory filing. The proposed $287.5 million offering size is a placeholder amount used to calculate registration fees and may change. The prospectus didn’t include information about the insurer’s implied valuation.
Mortgage insurers have rallied this year as the U.S. residential real estate market rebounds and the government weighs scaling back its role in housing finance. MGIC Investment Corp. (MTG) and Radian Group Inc. sold stock and notes this year to rebuild capital. Losses had mounted at the companies as homeowners defaulted during the housing slump, triggering payouts on policies sold prior to the crash.
Essent was created “to serve the U.S. housing finance industry at a time when the demands of the financial crisis and a rapidly changing business environment created the need for a new, privately funded mortgage insurance company,” the firm said in the filing. Its mortgage guarantee unit was formed in late 2008.
The following year, Essent agreed to pay as much as $30 million for software and other assets from Triad Guaranty Inc., a mortgage insurer hobbled by losses from soured home loans. Competitor PMI Group Inc. ceased writing new coverage and filed for bankruptcy in 2011.
As those companies stopped writing new business, Essent expanded. The firm accounted for 9.2 percent of coverage sales in the first six months of this year, up from 5.2 percent a year earlier, according to data compiled by Inside Mortgage Finance.
The insurer posted net income of $30.8 million in the six months ended June 30, compared with a net loss of $12.5 million a year earlier, according to the filing. Premium revenue more than tripled from the same period in 2012, as losses and expenses were almost unchanged.
Proceeds from the offering may be used for “capital contributions to support the growth of our insurance subsidiaries,” according to the filing.
Essent’s investors include New York-based Goldman Sachs and Valorina LLC, which is majority owned by an entity that’s managed by Soros Fund Management LLC, according to the filing. The company is planning to list its shares on the New York Stock Exchange under the ticker ESNT.
Mortgage insurers may benefit as the U.S. retools the housing-finance system. President Barack Obama said in a speech last month the government should play a smaller role covering soured home loans and that private capital should take more risk as Freddie Mac and Fannie Mae are wound down.
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