Radian Group Inc., the parent company of bond insurer Radian Asset Assurance Inc., announced late Wednesday that it sold part of its stake in debt recovery solutions firm Sherman Financial Group LLC for $278 million in cash. Sherman was part of the Radian parent’s mortgage insurance subsidiary, Radian Guaranty Inc., and the sale’s proceeds are expected to stay at the mortgage-insurer. While this money will relieve pressure on the credit ratings of its sister company, Radian Asset will not be affected directly by the sale. Following the sale, which closed yesterday, Radian owns 21.8% of the outstanding equity in Sherman. MGIC Investment Corp., the mortgage insurer that was set to merge with Radian until the two called off the deal earlier this month, holds a further 24.2% of the company. The rest is now owned by Sherman management, which has the option to buy all of Radian’s remaining interest in Sherman within the next year. “At the end of the day, if there is good news for the parent company, there is some overhang that theoretically might be good for all,” said Fitch Ratings managing director Tom Abruzzo . “But this is truly for the mortgage insurance subsidiary.” From the mortgage insurer’s perspective, the extra money “relieves some of the pressure” on its AA-minus insurer financial strength rating from Fitch, according to a report published yesterday. “This development is of particular note given the challenges being faced more broadly in the mortgage insurance industry, and as the company regroups following the recent termination of a proposed merger with MGIC Investment Corp.,” Fitch said. Though it does not offer mortgage insurance, Radian Asset has also suffered from the fallout of the failed merger. Fitch downgraded the bond insurer’s IFS rating to A-plus from AA and put the firm on an evolving credit watch when it became clear the merger had failed. The usefulness of Radian’s insurance in the municipal market decreased leading up to and following the downgrade. Radian-backed muni bonds traded wider than 100 basis points over standard, high-grade municipal curves in early September, though they have come back in during recent weeks, according to data from Radian Asset. It is difficult to isolate changes in these spreads to the market’s perception of Radian, as the credit ratings on any given deal and the general widening and contracting of spreads are also at work. But the company’s data showed that this week Radian-backed bonds have continued to price and trade tighter to standard curves. For example, the 30-year maturity on a $7.3 million current interest bond deal for Fronterra Village, Colo., Metropolitan District #2 yielded 73 basis points over standard curves, according to Thomson Municipal Market Monitor. Radian Asset announced late yesterday that it will host a conference call to speak with market participants next Thursday.
