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Radian Group Inc. Reports Operating Results (10-Q)

August 09, 2010 | About:
10qk

10qk

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Radian Group Inc. (RDN) filed Quarterly Report for the period ended 2010-06-30.

Radian Group Inc. has a market cap of $615.39 million; its shares were traded at around $7.42 with and P/S ratio of 0.47. The dividend yield of Radian Group Inc. stocks is 0.13%.RDN is in the portfolios of Bruce Kovner of Caxton Associates.

Highlight of Business Operations:

As of June 30, 2010, also as a result of the downgrades of the financial strength ratings of Radian Asset Assurance, the counterparties to most of our financial guaranty transactions currently have the right to terminate these transactions. If all of these counterparties had terminated these transactions as of June 30, 2010, our net par outstanding would have been reduced by $34.5 billion, with a corresponding decrease in unearned premium reserves of $8.9 million and a decrease in the present value of expected future installment premiums of $132.5 million. Net unrealized losses on derivatives and other financial instruments of $691.3 million would also have been reversed had these transactions been terminated. We have no transaction where our counterparty currently has the right to terminate the transaction with settlement on a mark-to-market basis due to the financial strength downgrades.

At June 30, 2010, our financial services segment consisted solely of our 46% interest in Credit-Based Asset Servicing and Securitization LLC (C-BASS), a mortgage investment company which we wrote off completely in 2007 and whose operations are currently in run-off. On May 3, 2010, Radian Guaranty sold its remaining 28.7% equity interest in Sherman Financial Group LLC (Sherman), a consumer asset and servicing firm specializing in charged-off and bankruptcy-plan consumer assets, for approximately $172 million in cash. Radian Guaranty received a $1.5 million dividend from Sherman in the first quarter of 2010, and an additional $28.0 million dividend in April 2010.

Total mortgage insurance claims paid in the second quarter of 2010 were $337.3 million, compared to $357.3 million in the first quarter of 2010 and $426.8 million in the fourth quarter of 2009. Claims paid in the first quarter of 2010 include $90.5 million related to the settlement of first- and second-lien transactions. Claims paid in the fourth quarter of 2009 include $197.7 million related to the settlement of first-lien transactions, partially offset by $25.2 million of recoveries related to the termination of captive arrangements. Foreclosure moratoriums and loan modification programs by the U.S. Treasury and certain of our lender-customers aimed at mitigating the current housing downturn have reduced the number of defaults going to claim. We cannot be certain of the ultimate impact of these programs on our

Our exposure to international mortgage insurance CDS at June 30, 2010, consisted of one CDS referencing residential mortgage-backed securities (RMBS) related to mortgage loans in the Netherlands. This CDS contains prime, low LTV mortgages. Our exposure to this transaction was approximately $108.8 million as of June 30, 2010, with remaining subordination of $13.5 million. Our insurance covers several tranches in this transaction, which are rated between BBB and AAA, with over half of our exposure in the AAA category. This transaction is performing well, and we do not currently expect to pay claims on this transaction.

The credit quality of the $579.5 million of net par outstanding of domestic non-CDO RMBS in our financial guaranty insured portfolio also deteriorated in the first half of 2010, primarily due to an increase in the BIG exposure in the $180.1 million Alt-A RMBS portfolio. The Alt-A RMBS portfolio experienced an increase in BIG net par outstanding from 47.4% to 79.8%, and our total BIG net par outstanding to domestic non-CDO RMBS increased from 48.9% of net par outstanding as of December 31, 2009 to 58.9% as of June 30, 2010.

As a result of the sale of our remaining interest in Sherman on May 3, 2010, we recorded a pre-tax gain of approximately $34.8 million, net of transaction related expenses of $1.3 million and a pre-tax decrease in accumulated comprehensive income of $29.7 million.

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