Radian, Creditors Agree to Amendments; Net Worth Provisions Relaxed

In good news for at least one mortgage insurer, Radian Group Inc. (RDN) said late Wednesday that it had finalized negotiations with key creditors, including Cleveland-based KeyCorp (KEY), that amend the terms of the insurer’s primary back-up source of liquidity to eliminate covenants tied to the firm’s insurer financial strength ratings. Radian had said on April 10th that it had secured a waiver on rating terms, and that its credit had been frozen pending a long-term resolution. The finalized amendment agreed upon “would permanently eliminate the ratings covenant included in the current facility,” Radian said in a press statement, as well as relaxing net worth requirements. The new terms come with a price tag, however: the formerly unsecured credit facility will shift to a secured interest in as of yet unnamed company assets, while the size of the credit facility would be reduced from $400 million to $250 million. Along with three other major mortgage insurers, Radian’s key insurer financial strength rating was cut below the critical AA- threshold recently by Standard & Poor’s, on the grounds that the rating agency expected housing price declines to be steeper than it had originally projected. Larger price declines usually translate into both higher claims and greater losses on claims for private mortgage insurers. Both Fannie Mae and Freddie Mac generally require mortgage insurers to maintain at least a AA- rating level in order to remain a top-tier, approved insurer on the loans they purchase. Radian has already submitted a required remediation plan to both GSEs, and has said it is committed to restoring profitability and a AA rating to its MI operation. Shares in the mortgage insurer rallied on the news rising nearly 13 percent in Thursday’s trading session. Disclosure: The author owned no positions in RDN when this story was originally published. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.