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Rating Action:

Moody's places Radian Group on review for upgrade

23 Dec 2014

New York, December 23, 2014 -- Moody's Investors Service, ("Moody's") has placed on review for upgrade the Ba2 Insurance Financial Strength (IFS) ratings of Radian Guaranty Inc. (Radian Guaranty) and Radian Mortgage Assurance Inc. (RMA) as well as the Ba1 IFS rating of Radian Asset Assurance Inc. (Radian Asset). In the same rating action, Moody's also placed on review for upgrade the B3 senior unsecured debt ratings of Radian Group Inc. The rating action also has implications for the various transactions wrapped by Radian Asset as discussed later in this press release.

Today's rating action was prompted by the announcement by Radian Guaranty, a direct subsidiary of Radian Group (NYSE: RDN), that it has entered into a Stock Purchase Agreement to sell 100% of the issued and outstanding shares of Radian Asset, its financial guaranty insurance subsidiary, to Assured Guaranty Corp. (AGC, A3 IFS, negative), a subsidiary of Assured Guaranty Ltd. (NYSE: AGO, senior debt at Baa2, stable) for a purchase price of approximately $810 million. The purchase price is payable in cash consideration on the closing date, which is expected to occur in the first half of 2015, subject to satisfaction of customary closing conditions including regulatory approvals. Assured Guaranty stated that it intends to merge Radian Asset into AGC immediately following the acquisition.

Radian expects the transaction to increase Radian Guaranty's Available Assets, required by the Private Mortgage Insurer Eligibility Requirements (PMIERs), by $790 million on consummation of the transaction.

RATINGS RATIONALE - RADIAN GUARANTY, RADIAN MORTGAGE ASSURANCE AND RADIAN GROUP

The review for upgrade reflects Moody's view that the sale of Radian Asset increases the amount of capital readily accessible to Radian Guaranty, and will strengthen its capital adequacy relative to insured mortgage exposures. In addition, completion of the transaction will meaningfully reduce the shortfall in Radian Guaranty's Available Assets relative to the PMIER Required Assets, an important step towards attaining PMIER compliance and defending against erosion of its franchise due to actual or perceived difficulties in becoming compliant. Additionally, Radian Group's credit profile would strengthen as a result of improvement at its Radian Guaranty subsidiary.

Radian Guaranty estimates that it will have a shortfall in PMIER Available Assets of approximately $400 million after taking into consideration the anticipated $790 million in net proceeds from the sale of Radian Asset and unencumbered holding company cash of approximately $770 million that Radian has earmarked for capital contributions to Radian Guaranty. However, we consider there to be competing demands on the holding company cash, which will be required to support repayment of approximately $645 million in senior and convertible debt due in 2017, unless the company is able to refinance or otherwise extend the term of that debt. In addition to waiting for regulatory approval of the transaction, Moody's review will focus on the extent to which the proceeds from the sale of Radian Asset improve Radian Guaranty's overall capital adequacy, and its ability to address the remaining shortfall to PMIER Required Assets.

Moody's notes that RMA and Radian Guaranty, although separate legal entities, are evaluated jointly. RMA and Radian Guaranty entered into a cross guaranty agreement in 1999 that remains in place. Under the agreement, if RMA fails to make payment to policyholders, Radian Guaranty will make the payment, and vice versa. The obligations of both parties are unconditional and irrevocable, though any payments are subject to regulatory approval.

Moody's added that the following factors could lead to an upgrade: 1) regulatory approval and consummation of the sale of Radian Asset to AGC; 2) additional substantial capital injection into Radian Guaranty; 3) greater clarity about the Radian's ability to attain PMIER compliance. A rating confirmation, or downgrade, could result from: 1) a cancellation of the transaction; 2) Radian's inability to meet PMIER requirements or; 3) a deterioration in Radian Group's ability to meet its debt service requirements over the next few years.

RATINGS RATIONALE -- RADIAN ASSET

According to Moody's the sale of Radian Asset to AGC would have a positive impact on its credit profile and IFS rating. Upon completion of the merger with AGC, Radian Asset's policyholders will become policyholders of AGC, and their rights will rank pari passu with existing AGC policyholders.

Moody's notes that regulatory approval and consummation of the acquisition and merger with AGC will likely lead to an upgrade of Radian Asset. A cancellation of the planned sale could lead to a rating confirmation or downgrade of Radian Asset.

LIST OF RATING ACTIONS

The following ratings have been placed on review for upgrade:

Radian Group Inc. -- senior unsecured debt at B3, senior unsecured shelf at (P)B3, subordinate shelf at (P)Caa1, preferred shelf at (P)Caa2, preferred non-cumulative shelf at (P)Caa2, senior subordinate shelf at (P)Caa1;

Radian Guaranty Inc. -- insurance financial strength rating at Ba2;

Radian Mortgage Assurance Inc. -- insurance financial strength rating at Ba2;

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 (Ba1 IFS rating, negative outlook). The group also has investments in other financial services entities. As of September 30, 2014, Radian Group had approximately $6 billion in total assets and $1.7 billion in shareholder's equity.

The principal methodology used in these ratings was Moody's Global Methodology for Rating Mortgage Insurers published in December 2012. Please see the Credit Policy page on www.moodys.com for a copy of this methodology.

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 methodology "Rating Transactions Based on the Credit Substitution Approach: Letter of Credit-backed, Insured and Guaranteed Debts" (March 2013).

As a result of today's rating action, the Moody's-rated securities that are guaranteed or "wrapped" by Radian Asset are placed under review for upgrade, except those with A3 and higher published underlying ratings (and for structured finance securities, except those with A3 and higher published or unpublished underlying ratings). The A3 cutoff reflects Moody's opinion that Radian Asset policyholders would rank pari passu with Assured Guaranty Corp.'s (IFS at A3) policyholders should the two entities merge post acquisition.

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain 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 certain 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 certain 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.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this rating action, and whose ratings may change as a result of this rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

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.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Brandan Holmes
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
Associate Managing Director
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 places Radian Group on review for upgrade
No Related Data.
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