Sell Side

Deal Could Mean Return of Radian

Radian Asset Assurance Inc.'s acquisition of Municipal and Infrastructure Assurance Corp. may signal its return to the struggling bond insurance industry after a 28-month hiatus. It also appears to mark the end of Macquarie Group's ill-timed attempt to enter the business.

Radian Asset was compelled to stop writing public finance guarantees in the fall of 2008 so it could prop up sister company Radian Guaranty, a mortgage insurance business. It announced its purchase of MIAC for $82 million on Thursday.

MIAC is a shell company that Macquarie Group, an Australian investment firm, has struggled to launch as a municipal bond insurer since late 2008.

Radian Asset's Philadelphia-based parent, Radian Group, is the second-largest mortgage insurer in the U.S. The parent company disclosed the Feb. 1 acquisition, which remains subject to regulatory approval, in a fourth-quarter earnings filing submitted to the Securities and Exchange Commission.

Radian Asset said the "ultimate goal" in acquiring MIAC is to reduce its financial guaranty exposure. The filing also indicated it could pursue "strategic alternatives," including partnering with third-party investors to begin writing new insurance policies and reinsuring its existing book.

"The option to purchase this shell company was a rare opportunity," said Radian spokeswoman Emily Riley, who called MIAC a "well-developed, clean platform with no outstanding liabilities."

The $82 million acquisition cost is $7 million above MIAC's capital base. It has held $75 million of cash, cash equivalents, and Treasury securities since receiving approval from the New York Insurance Department to operate in October 2008.

MIAC never succeeded in obtaining ratings or writing business, but retains some value in having received licenses to operate in 36 states and the District of Columbia, according to Radian.

Riley declined to comment further on the company's plans, saying it is still evaluating its strategic options.

Radian Asset's insured public finance portfolio had a net par of $37.63 billion at the end of 2010, including $15.73 billion of direct policies and $21.9 billion of reinsurance. It also insures $39.3 billion of structured finance products and $1.8 billion of structured reinsurance.

A spokesman from Macquarie declined to offer additional comment. The company has not spoken publicly about MIAC since a company source disclosed in October that it was "pursuing various options for the MIAC business, including an exit or sale of the business."

Radian Asset is rated Ba1 by Moody's Investors Service. Standard & Poor's rates it two notches lower at BB-minus. It listed $1 billion in statutory surplus with an additional $1.4 billion in claims-paying resources at the end of 2010.

Despite its junk ratings, Radian Asset "continues to serve as an important source of capital support" for Radian Guaranty, the mortgage insurer. It is expected to pay an ordinary dividend of $60 million to the mortgage insurer in June.

The bond insurance market is still reeling from the financial crisis, when most participants were severely impaired from exposure to mortgage-backed securities.

Only Assured Guaranty Ltd. is active writing new policies. It wrapped less than 7% of all issuance in 2010.

National Public Finance Guarantee Corp., the muni-only insurer launched by MBIA Inc. in 2009 to manage its existing portfolio of insured munis, hopes to enter the market to issue new policies pending the outcome of litigation contesting its creation. Berkshire Hathaway Assurance Corp., launched in early 2008, has not wrapped new issues since April 2009.

A new entrant with hopes to enter the market this year is BondFactor Co., a firm launched by public finance veterans from Goldman, Sachs & Co.


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