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13 Feb 2009
New York, February 13, 2009 -- Moody's Investors Service has downgraded to Ba3 from A2 the insurance
financial strength ratings of Radian Group, Inc.'s
primary mortgage insurance subsidiaries. Moody's also downgraded
the insurance financial strength rating of Radian Insurance, Inc.
to B1 from Baa1. The review of the insurance financial strength
ratings of Radian's financial guaranty insurance subsidiaries will
be concluded shortly. The senior debt rating of the holding company
was downgraded to B3 from Ba1. The rating outlook is developing.
Today's rating action concludes a review for possible downgrade
that was initiated on October 10, 2008 and reflects the significant
stress on the company's risk-adjusted capital position due
to Moody's higher mortgage loss expectations resulting from the
weak economic environment and continued deterioration in housing fundamentals.
The downgrade also considers the continued pressure on Radian's
profitability and the meaningful constraints on the company's financial
flexibility in the current market environment. Moody's also
believes that the business model of mortgage insurance has deteriorated
as losses have mounted and as the future of the US mortgage finance market
has been clouded by weakness at Freddie Mac and Fannie Mae.
According to Moody's, Radian's risk-adjusted
capital adequacy remains under significant pressure in light of large
incurred losses to date and rapidly escalating delinquency counts,
as well as the meaningful uncertainty regarding the ultimate severity
and duration of the current down cycle in housing fundamentals,
and the resulting impact on ultimate claims. Moody's currently
views Radian's capital adequacy as being consistent with a rating
in the Ba rating category. The Ba3 rating also considers other
factors such as the weakened franchise, likelihood of sustained
losses for several years, and substantially constrained access to
Moody's notes that the large incurred losses sustained by Radian
over the past year are placing meaningful capital strain on the firm.
New business volumes have dropped as the company has tightened its underwriting
guidelines. In Moody's opinion, without additional
capital injections in the near term, it is possible that the company
could breach maximum statutory risk to capital guidelines within the next
18 months, which could impact the company's ability to write
new business in the absence of regulatory forbearance.
The rating agency stated that there is also increased uncertainty regarding
the future role of the mortgage insurers within the framework of the evolving
mortgage finance market. Traditionally, the mortgage insurers
have held a defensible position of providing credit enhancement on conforming
high LTV loans for ultimate purchase by Fannie Mae and Freddie Mac due
to the statutory requirement for credit enhancement on high LTV loans
in the GSE charters. Recently, however, the penetration
rates of the private mortgage insurers have declined substantially due
to the tightening of underwriting guidelines in an effort to reduce risk
and preserve capital. Given the more proactive role of the Federal
government in the mortgage finance market currently, through the
conservatorship of the GSEs and the increased utilization of FHA for mortgage
loan credit enhancement, as well as the capacity constraints among
the mortgage insurers, it is possible that private mortgage insurance
will play a less prominent role in the mortgage finance market in the
future, adversely impacting Moody's assessment of the franchises
of the mortgage insurers.
The B3 rating for the holding company, Radian Group, Inc.,
reflects its constrained financial flexibility and the negative impact
of a protracted downturn in the mortgage finance market on its liquidity
position. Moody's notes that Radian Group has expense-sharing
agreements in place with its principal operating subsidiaries that require
that these subsidiaries pay their share of holding company level expenses,
including interest expense on debt. The termination of these arrangements,
which are at the discretion of the insurance regulators, would be
an event of default for the holding company's $100 million
bank credit facility. While Radian currently has sufficient cash
at the holding company to repay the credit facility (which would avoid
acceleration of the company's senior notes), such payment
in combination with potential payments to the subsidiaries relating to
a tax sharing agreement would significantly weaken the liquidity position
and refinancing risk of the holding company.
Moody's stated that the developing outlook reflects both the potential
for further deterioration in the insured portfolio as well as positive
developments that could occur over the near to medium term, including
the possibility of a greater than expected level of claims recissions,
the potential for various initiatives being pursued at the US Federal
level to mitigate the rising trend of mortgage loan defaults, as
well as the possibility that the mortgage insurers gain access to government
capital in a program similar to the U.S. Treasury's
Capital Assistance Program. Moody's will continue to evaluate Radian's
ratings in the context of the future performance of the company's insured
portfolio relative to expectations and resulting capital adequacy levels,
as well as changes, if any, to the company's strategic and
capital management plans.
LIST OF RATING ACTIONS
The following ratings have been downgraded, with a developing outlook:
Radian Group, Inc. -- senior unsecured debt
to B3 from Ba1, provisional rating on senior unsecured debt to (P)B3
from (P)Ba1, provisional rating on subordinated debt to (P)Caa1
from (P)Ba2, and provisional rating on preferred stock to (P)Caa2
Radian Group Capital Trusts I and II -- provisional ratings
on subordinated debt to (P)Caa1 from (P)Ba2;
Radian Insurance Inc. -- insurance financial strength
to B1 from Baa1;
Amerin Guaranty Corporation -- insurance financial strength
to Ba3 from A2;
Enhance Financial Services Group Inc. -- prospective
senior debt to (P)B3 from (P)Ba1 and prospective subordinate debt to (P)Caa1
The last rating action related to Radian occurred on October 10,
2008, when Moody's placed the company's ratings on review
for possible downgrade.
The principal methodologies used in rating Radian are "Moody's Global
Rating Methodology for the Mortgage Insurance Industry" and "Moody's
Rating Methodology for the Financial Guaranty Insurance Industry"
which can be found at www.moodys.com in the Credit Policy
& Methodologies directory, in the Ratings Methodologies subdirectory.
Other methodologies and factors that may have been considered in the process
of rating Radian can also be found in the Credit Policy & Methodologies
Radian Group, Inc. is a US based holding company which owns
a mortgage insurance platform comprised of Radian Guaranty, Radian
Insurance and Amerin Guaranty, as well as a financial guaranty insurance
company, Radian Asset. The group also has investments in
other financial services entities. As of September 30, 2008,
Radian Group had total assets of $8.2 billion and $2.3
billion in shareholder's equity.
Financial Institutions Group
Moody's Investors Service
Moody's downgrades Radian Guaranty to Ba3; outlook is developing
Senior Vice President
Financial Institutions Group
Moody's Investors Service
No Related Data.
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