MGIC Investment Corporation
) has raised capital worth $1145.35 million. The capital has been
raised in two parts with $695.25 million from the issue of shares
and $450 million from the issue of 2.00% convertible senior notes
Interest on the notes will be paid at a rate of 2.00% per
year, semi-annually on Apr 1 and Oct 1 of each year, effective
Oct 1, 2013.
The total number of shares issued were 135 million. The
underwriters were given a 30-day option to purchase up to an
additional 20-25 million shares and $50 million of notes.
The proceeds from the issue will be used for general corporate
purposes. The funds will primarily be used to provide additional
capital support for its mortgage insurance business run by
subsidiary Mortgage Guaranty Insurance Corporation (MGIC).
Capital support will also be provided to other subsidiaries of
the company. The funds will also be used to service debt thereby
improving overall liquidity.
The debt can be converted for 143.8332 shares of common stock
per $1,000 principal amount of notes.
The issue is being managed by
The Goldman Sachs Group, Inc.
This move by the company clearly shows remedial measures taken
by it after its risk to adjusted capital breached the maximum
allowable permissible limits. The preliminary risk-to-capital
ratio at MGIC's combined insurance operations was 47.8 to 1 as of
Dec. 31, 2012.
Mortgage insurance regulators commonly allow for a maximum
risk-to-capital ratio of 25 to 1. The drain in capital has come
on the back of continuous loss suffered by the company since the
mortgage market tumbled back in 2007.
MGIC, the principal subsidiary of MGIC Investment Corporation,
is the largest private mortgage insurer in U.S. on the basis of
$162.1 billion primary insurance in force covering 1.0 million
mortgages as of Dec 31, 2012.
Another player in the same industry
Radian Group Inc.
) has also been suffering from loss from the last six years. It
raised $689.3 million of capital from a combination of issue of
common stock and notes. Yet another company
Triad Guaranty Inc.
) has filed for bankruptcy.
GOLDMAN SACHS (GS): Free Stock Analysis
MGIC INVSTMT CP (MTG): Free Stock Analysis
RADIAN GRP INC (RDN): Free Stock Analysis
TRIAD GUARANTY (TGIC): Free Stock Analysis
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