Assured Guaranty to Acquire Radian Asset

Assured Guaranty said it plans to purchase fellow bond insurer Radian Asset for $810 million to expand its municipal bond franchise.

Radian Asset had an insured portfolio of $19.4 billion of net par outstanding as of Sept. 30, Radian said in a statement on Tuesday. Of this total, $11 billion was in public finance and $8.4 billion in structured finance, said Radian Group spokeswoman Emily Riley. Radian Asset is a subsidiary of Radian Group.

By comparison, on the same date Assured Guaranty Ltd. had $329 billion in net par outstanding of United States municipal bonds, spokesman Robert Tucker said.

Assured Guaranty intends to have its subsidiary Assured Guaranty Corp. absorb Radian Asset. AGC insures public finance and other financial products. Assured Guaranty has two other subsidiaries, Assured Guaranty Municipal and Municipal Assurance Corp., which only insure public finance.

AGC's absorption of Radian Asset's portfolio would bring its own net par outstanding to $68.3 billion, Assured said in a statement.

"We are pleased to enter into this mutually beneficial transaction with Radian," said Dominic Frederico, President and CEO of Assured Guaranty. "The acquisition will strengthen Assured Guaranty's franchise by adding a solid book of business that is consistent with our strategic objectives and will also increase AGC's capital base and policyholders' surplus."

"We expect the transaction to be accretive to Assured Guaranty's earnings per share, operating shareholders' equity and adjusted book value," Frederico added. "Additionally, the acquisition should enhance the value and market liquidity of the bonds insured by Radian Asset."

Assured expects the purchase, subject to regulatory approval, to be completed in the first half of 2015.

Through the purchase, AGC will gain statutory capital, said bond insurer analyst Mark Palmer. Palmer is managing director at BTIG LLC, which plans to sell investment banking service to Assured Guaranty in the next three months.

Greater statutory capital will mean that AGC will be even more stable, Palmer said. However, the ratings agencies are unlikely to upgrade AGC, he said.

By purchasing Radian Asset, Assured Guaranty gained insured exposures at a time when low interest rates have reduced Assured's new business, Palmer said.

Some of AGC's increased capital will be shifted to parent company Assured Guaranty Ltd, Palmer said. It is likely that Assured Guaranty Ltd. will use some of this money to do stock buybacks, he said.

Palmer said Assured got a good deal in the price it paid for Radian as it reflected discount to book value, he said.

Assured Guaranty Ltd.'s rose 2.3% to 26.05 at the close on Tuesday on the New York Stock Exchange.

Much of Radian Group's activity is as a private mortgage insurer that works with FreddieMac and Fannie Mae. The Federal Housing Finance Agency is changing the capital requirements for private mortgage insurers. These requirements would disallow Radian Group's capital in Radian Asset from the group's available assets, according a statement from Radian Guaranty.

The FHFA has plans to bring the capital requirements into effect in 2015, though some insurers may be given a transition period of up to two additional years, according to Radian Guaranty, a subsidiary of Radian Group.

"As a result, Radian has been pursuing a plan to monetize Radian Asset, including a sale of the company, in order to increase Radian Guaranty's available assets and better position Radian Guaranty to comply with the [FHA's] financial requirements," Radian said in a statement. "While the sale of Radian Asset is expected to result in a Generally Accepted Accounting Principles and statutory loss in the fourth quarter of 2014 …, the consummation of the transactions is expected to increase Radian Guaranty's available assets by approximately $790 million."

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