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Rating Action:

Moody's downgrades Radian Group's senior debt rating to Caa2, confirms insurance financial strength ratings of subsidiaries

Global Credit Research - 17 Apr 2012

New York, April 17, 2012 -- Moody's Investors Service has downgraded Radian Group's senior debt rating to Caa2 from Caa1. In addition, Moody's has confirmed the Ba3 insurance financial strength (IFS) ratings of Radian Guaranty Inc. (Radian Guaranty) and Radian Mortgage Assurance Inc. (RMA), and the Ba1 IFS rating of Radian Asset Assurance Inc. (Radian Asset). The outlook for all ratings is negative.

RATING RATIONALE -- RADIAN GROUP (Radian)

Moody's said that the downgrade of Radian's senior debt rating reflects the holding company's constrained liquidity, the ongoing stress at its mortgage insurance subsidiaries, and its upcoming debt maturities. After adjusting its December 31, 2011 unrestricted cash and liquid investments for the recent tender auction related to its 2013 debt obligations, Radian has remaining unrestricted cash and liquid investments of approximately $350 million. Since dividends from Radian Guaranty are unlikely for the foreseeable future given its weak regulatory capital position, Moody's believes that the holding company may not be able to meet its senior debt obligations, $103.9 million 2013 senior debt, $250 million 2015 senior debt, and $450 million convertible senior debt due in 2017, and that debt holders could potentially face material losses. Moody's views the recent Radian tender auction for $146 million of its 2013 senior debt at 90% of par a distressed exchange given the debt's yield to maturity combined with the company's untenable capital structure.

RATING RATIONALE -- RADIAN GUARANTY AND RMA

The confirmation of the Ba3 IFS ratings of Radian Guaranty and RMA reflects: 1) their consolidated financial resources, including dividends from Radian Asset, in excess of Moody's base case losses, and 2) their ability to continue to write new business for some time given recently granted regulatory and counterparty waivers. Some states require mortgage insurers to operate below a 25 to 1 risk-in-force to capital ratio, which we believe Radian will likely breach sometime later this year. As a result, Radian Guaranty would have had difficulty writing business, absent such waivers. Radian Group intends to capitalize RMA, if needed, to write business in states where it has not obtained such waivers. New high quality business production has partially mitigated legacy losses, which enhances Radian's chances of a turnaround.

RATING RATIONALE -- RADIAN ASSET

The confirmation of the Ba1 rating of Radian Asset, Radian Guaranty's wholly owned financial guaranty subsidiary, reflects 1) its strong capital profile and orderly runoff, and 2) the group's dependence on Radian Asset's resources to support Radian Guaranty's strategic mortgage insurance business. Portfolio amortization, recent commutations of an ABS CDO and some TruPs CDOs contributed to reduce insured portfolio expected and stressed losses. Radian Asset has been paying regular dividends to Radian Guaranty since 2008 and releasing redundant contingency reserves periodically to enhance its and Radian Guaranty's statutory surplus.

RATING OUTLOOK

The negative rating outlook reflects the continued uncertainty in mortgage insurance losses, and the firm's dependence on regulatory and counterparty forbearance to continue to write business.

Moody's cited the following factors that could lead to an upgrade of Radian's ratings: (i) improving housing market outlook resulting in lower insured mortgage losses (ii) injection of capital that meaningfully improves its capital adequacy (iii) better than expected loss developments in its financial guaranty or mortgage insurance portfolios and (iv) more clarity about regulatory and market drivers of future demand for mortgage insurance.

Moody's cited the following factors that could lead to a rating downgrade: (i) regulatory actions preventing Radian Guaranty from writing new business or loss of eligibility status with the GSEs (ii) greater than anticipated adverse loss developments in the financial guaranty and mortgage insurance portfolios resulting in less resources available at the insurance companies and (iii) capital deficiency relative to its Ba rating threshold that remains uncorrected.

TREATMENT OF WRAPPED TRANSACTIONS

Moody's ratings on securities that are guaranteed or "wrapped" by a financial guarantor are generally maintained at a level equal to the higher of the following: a) the rating of the guarantor (if rated at the investment grade level); or b) the published underlying rating (and for structured securities, the published or unpublished underlying rating). Moody's approach to rating wrapped transactions is outlined in Moody's special comment entitled "Assignment of Wrapped Ratings When Financial Guarantor Falls Below Investment Grade" (May, 2008); and Moody's November 10, 2008 announcement entitled "Moody's Modifies Approach to Rating Structured Finance Securities Wrapped by Financial Guarantors".As a result of today's rating action, the Moody's-rated securities that are guaranteed or "wrapped" by Radian Asset have also been confirmed, except those with higher published underlying ratings (and for structured finance securities, except those with higher published or unpublished underlying ratings). . A list of these securities will be made available under "Ratings Lists" at www.moodys.com/guarantors.

LIST OF RATING ACTIONS

The following rating was downgraded and has a negative outlook:

Radian Group Inc. -- senior unsecured debt to Caa2, from Caa1.

The following ratings have been confirmed with a negative outlook:

Radian Guaranty Inc. -- insurance financial strength rating at Ba3;

Radian Mortgage Assurance Inc. -- insurance financial strength rating at Ba3;

Radian Asset Assurance Inc. -- insurance financial strength rating at Ba1.

Radian Group Inc. is a US-based holding company that owns a mortgage insurance platform comprised of Radian Guaranty, Radian Insurance and Radian Mortgage Assurance, and financial guaranty insurance company Radian Asset. The group also has investments in other financial services entities. As of December 31, 2011, Radian Group had $6.66 billion in total assets and $1.18 billion in shareholder's equity.

The principal methodologies used in this rating were Moody's Global Rating Methodology for the Mortgage Insurance Industry in February 2007 and Moody's Rating Methodology for the Financial Guaranty Insurance Industry published in September 2006. Please see the Credit Policy page on www.moodys.com for these methodologies.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

Information sources used to prepare each of the ratings are the following : parties involved in the ratings, public information, confidential and proprietary Moody's Investors Service information.

Moody's considers the quality of information available on the rated entities, obligations or credits satisfactory for the purposes of issuing these ratings.

Moody's adopts all necessary measures so that the information it uses in assigning the ratings is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

Please see ratings tab on the issuer/entity page on www.moodys.com for the last rating action and the rating history.

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Helen Remeza
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Stanislas F Rouyer
Senior Vice President
Financial Institutions Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's downgrades Radian Group's senior debt rating to Caa2, confirms insurance financial strength ratings of subsidiaries
No Related Data.

 

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