Radian Group’s Senior Unsecured Debt Upgraded by Moody’s

Radian Group Inc.’s RDN senior unsecured debt was recently upgraded to B1 by Moody's Investors Service – a credit rating business of Moody's Corporation MCO. The outlook remained positive. The rating reflects the group's recent access to capital markets on favorable terms, and the improving credit profile of the company's lead mortgage insurance subsidiary – Radian Guaranty Inc.

The upgrade follows the completion of the pricing of 5.25% Senior Notes worth $350 million, due 2020. The upward revision in ratings have also been driven by the purchase of Convertible Senior Notes worth $389 million, due 2017.

Per the credit rating agency, Radian Group’s debt issuance is credit positive. This is because it not only improves the holding company's debt maturity profile but also positions it better with respect to the anticipated timing to receive its affiliates’ dividend capacity. Additionally, Radian Guaranty’s debt issuance also remains positive.

Radian Group’s senior unsecured debt rating upgrade reflects the improvement in the holding company's debt maturity profile with the issuance. Moreover, it balances the holding company’s debt maturities with the capital needs of Radian Guaranty, thereby reducing the pressure of near-term liquidity. Additionally, with the final private mortgage insurer eligibility requirements (PMIERs) being much simpler, the need for extra capital has significantly reduced at Radian Guaranty. This has, in turn, lowered the demand on the liquid resources of the holding company to quite an extent.

The credit rating agency observed that the completion of debt issuance as well as share repurchases have made the company more flexible in balancing debt maturities and capital contributions to Radian Guaranty. Radian Group, as of Apr 1, 2015, had cash and liquid investments worth $707 million. The company also had senior unsecured and convertible debt worth $646 million and $700 million that are due in 2017 and 2019, respectively. Post debt refinancing, the company will have approximately $257 million and $700 million in debt that are due in 2017 and 2019, respectively. This will be followed by $350 million in senior notes, due in 2020.

Radian Group is likely to witness another rating upgrade if its capital adequacy is improved and is sufficient to comply with the PMIERs. Also, the company needs be certain about the potential outcomes of its tax dispute with the IRS.

However, adverse development in Radian Group's insured mortgage portfolio along with its inability to meet PMIERs could result in a downgrade. Deterioration in the company's ability to meet its debt service could also result in a downward revision in ratings.

Rating affirmations or upgrades from credit rating agencies play an important part in instilling investor confidence in the stock as well as in maintaining its creditworthiness in the market. Currently, Radian carries a Zacks Rank #3 (Hold).

Better-ranked stocks from the multiline insurance sector include ageas SA/NV AGESY and Assured Guaranty Ltd. AGO. Both these stocks sport a Zacks Rank #1 (Strong Buy).

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