Island bond insurer agrees $810m acquisition
Bermuda-based bond insurer Assured Guaranty Ltd has agreed to pay $810 million to buy the financial guaranty business of Philadelphia-based Radian Group.
Assured's chief executive officer Dominic Frederico said the deal would boost earnings per share and would significantly increase the company's book of business.
Assured is a major player in the US municipal bond insurance market and provides credit protection products to structured finance markets.
The Bermuda company's subsidiary Assured Guaranty Corp (AGC) has entered into the agreement to buy Radian Asset Assurance Inc.
The US company is working to streamline its business and focus on insuring home loans. US regulators are planning to tighten oversight of the mortgage insurance business and the capital from the sale of the financial guaranty unit will help Radian to meet the enhanced requirements.
“The acquisition will strengthen Assured Guaranty's franchise by adding a solid book of business that is consistent with our strategic objectives and will also increase AGC's capital base and policyholders' surplus,” Mr Frederico said.
“We expect the transaction to be accretive to Assured Guaranty's earnings per share, operating shareholders' equity and adjusted book value. Additionally, the acquisition should enhance the value and market liquidity of the bonds insured by Radian Asset.”
Radian Asset had an insured portfolio of $19.4 billion at risk as of September 30. That would bring AGC's total net par outstanding to $68.3 billion.
Radian Asset has approximately $1.3 billion of statutory capital, and Assured Guaranty estimates the transaction will increase AGC's statutory capital by $425 million to $475 million.
“We are committed to streamlining our business and aligning our strategy toward the mortgage and real estate markets,” Radian Group CEO SA Ibrahim said in Radian's statement on the proposed deal. “This agreement marks an important milestone as we prepare for finalisation of the proposed PMIERs in 2015. While we expect to fully comply, the sale of Radian Asset will help to accelerate our ability to do so.”
Assured Guaranty shares rose 2.3 per cent in New York trading yesterday, to close at $26.05. Radian Group shares gained two per cent to close on $16.60.
Goldman Sachs Group Inc advised Radian on the sale. Assured Guaranty used Bank of America Corp's Merrill Lynch and Mayer Brown LLP.