Mortgage Insurers Hit Tie-Up Snag [WSJ]
By LINGLING WEI
August 8, 2007
The pending combination of mortgage insurers MGIC Investment Corp. and Radian Group Inc. appears to be in jeopardy due to losses in a jointly owned subprime-mortgage venture.
MGIC, which agreed in February to purchase Radian in a stock swap valued at about $4.9 billion, said it doesn't have to complete the acquisition in light of the "impairment" in Credit-Based Asset Servicing & Securitization LLC, known as C-BASS.
Radian said it disagrees with MGIC's assessment. "We remain committed to the transaction, and look forward to completing it as promptly as possible," it stated.
Both insurers said last week the "unprecedented" disruptions in the market for risky mortgages might have wiped out their stakes in C-BASS, valued at more than $1 billion just five weeks ago. The losses have also fueled market speculation that the two insurers, which each own 46% of C-BASS, won't able to sell their holdings in the venture, thereby potentially derailing the merger.
MGIC, the largest U.S. home-loan insurer, also said it is reviewing other developments that could affect its obligation to close the transaction. MGIC, in Milwaukee, is also seeking additional information from Philadelphia-based Radian and said it doesn't expect its analysis to be complete until next week. Radian said it "has fully complied with all of its obligations under the merger agreement."
Shares of both insurers have taken a heavy beating since their disclosure about losses in C-BASS, which specializes in buying at a discount mortgages extended to people with weak credit and repackaging them into mortgage-backed securities to sell to investors. The New York firm has hired Blackstone Group LP to help obtain capital as the continuing panic in the mortgage-bond market -- triggered by investors' growing aversion to owning risky debt securities -- has choked off its funding.
MGIC shares rose $1.56, or 4.7%, to $34.84 as of 4 p.m. in New York Stock Exchange composite trading, while Radian was off $2.61, or 11%, at $20.62. |
