Standard & Poor's Ratings Services said it raised its financial strength and long-term issuer credit ratings on Radian Guaranty Inc. and Radian Mortgage Insurance Inc. to BBB-minus from BB-plus, and raised its long-term issuer credit rating on Radian Group Inc. to BB-minus from B-plus.
At the same time, it assigned its BB-minus issue rating to the approximately $325 million senior notes issued by Radian Group Inc. The outlook is positive.
"The rating action on Radian Group and its subsidiaries is driven by our improved view of the company's financial flexibility," said Standard & Poor's credit analyst Hardeep Manku.
It views the company as having sufficient access to the capital markets to enable it to address concentration in its debt-maturity profile and implement its capital-management plan. The rater’s updated view of adequate financial flexibility is also supported by the improving trend in financial leverage during the next few years, helped by strong earnings and capital build-up.
The ratings on the senior notes reflect those on Radian Group Inc. The company intends to use the net proceeds from this offer together with shares of its common stock to purchase some of its outstanding 2019 convertible notes and otherwise for working capital and other general corporate purposes, which may include repurchasing its common stock and redeeming or repurchasing other outstanding 2019 convertible notes and 2017 convertible notes.
Prior to this debt issuance, the company repurchased 9.4 million shares to help facilitate its capital-management plan to redeem/repurchase 2019 convertible notes.
With the issuance, the leverage will increase until company utilizes the proceeds to retire targeted maturities. However, based on market timing and conditions, there is some execution risk, especially with 2019 convertibles, in which case the leverage can remain somewhat elevated. S&P expects the financial leverage to be around 32% for 2016 and fixed-charge coverage to be around 6x.
The positive outlook reflects potential for continued improvement in Radian's relative financial risk profile, aided by further decline in leverage and reduced reliance on double leverage improving the quality of capital.
S&P expects upper-adequate capitalization over the near-term. It expects Radian to maintain its competitive position, supported by ongoing compliance with Private Mortgage Insurers Eligibility Requirements, which should enable it to write new business and achieve operating performance. This is in spite of an expected increase in exposure as a result of new business volumes and an anticipated increase in persistency, partially offset by a decline in legacy exposure, assuming the macroeconomic environment remains supportive.
