Radian Group Inc. (NYSE:RDN) announced new capital plan in its efforts to return to investment grade ratings in the future. This plan follows the redemption of $325 million surplus notes by Radian Guaranty Inc., the mortgage insurance subsidiary of Radian Group.
Radian Guaranty redeemed the surplus note due, which immediately inflated Radian Group’s liquidity by $325 million to $700 million as of Jun 30, 2016.
The announced capital plan includes buying back up to $ $125 million worth shares through Jun 2017 and redeeming the remaining $196 million face value of its 9.00% Senior Notes due 2017. The capital plan also involves the gradual removal of outstanding Convertible Senior Notes from its capital structure and the likely redemption, repurchase or exchange of a portion of its other outstanding senior debt.
Based on the closing price on Jul 5, 2016, the buyback translates into 12.7 million shares or 5.9% of shares outstanding as of Mar 31, 2016.
In Dec 2015, Radian Group transferred $325 million of cash and marketable securities to Radian Guaranty against a surplus note with maturity scheduled on Dec 31, 2025. Subsequently, Radian Guaranty obtained regulatory approval to redeem the entire note on Jun 30, 2016. Radian Group remains in compliance with the PMIERs and, as of Jun 30, 2016, estimates that Radian Guaranty’s Available Assets exceeded its Minimum Required Assets by about $150–$200 million.
While the capital plan is intended to enhance shareholder value, it should also fortify the capital position of Radian Group at the same time. To that end, Radian’s Chief Executive Officer S.A. Ibrahim stated “The Board of Directors and management team continue to believe that Radian’s business fundamentals, growth prospects and long-term strategy are not reflected in the company’s current stock price. With our common stock trading at a significant discount to book value, we believe a share repurchase program represents an extremely attractive investment opportunity.”
Radian is poised for long-term growth on declining delinquency, lower levels of paid claims and an improving risk-based capital ratio, which reflect an improvement in its operating environment. The expected long-term earnings growth is currently pegged at 12.6%. Also, the Zacks Consensus Estimate has been on uptrend and we expect the momentum to continue.
Zacks Rank and Other Stocks
Radian Group carries a Zacks Rank #2 (Buy). Investors interested in multiline insurers can also look at Assurant Inc. (NYSE:AIZ) , Cigna Corp. (NYSE:CI) and MGIC Investment Corp (NYSE:MTG) . Each of these stocks carries the same Zacks Rank as Radian Group.
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RADIAN GRP INC (RDN): Free Stock Analysis Report
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