Radian Group Inc. RDN has expanded the amount of 4.50% senior unsecured notes offering to $450 million from $400 million announced earlier. These notes are scheduled to mature on Oct 1, 2024.
Radian Group intends to utilize the net proceeds along with available cash to fund a tender offer, buy back some outstanding senior notes and for general corporate purposes. Interest on these notes will be paid half-yearly on every Apr 1 and Oct 1.
The company exited the last reported quarter with debt balance declining 7.5% from 2016 end level. Long-term debt to equity ratio was 0.34, improving 320 basis points. With the new issuance, the long-term debt-to-equity ratio would deteriorated by 1540 basis points.
Additionally, Radian Group needs to dish out about $20 million in interest annually. In the last reported quarter, interest expense declined 28% to $16.2 million. Nonetheless, we still believe the company is well-positioned to smoothly clear debts, banking on operational strength.
It seems a prudent approach by the company to capitalize on the still low interest rate environment to procure funds.Also, this might lower the interest burden on borrowings, facilitating margin expansion.
Concurrently, these senior notes have been assigned a “Ba3” rating by Moody’s Investor Service, a wing of Moody Corporation. The outlook of the ratings remains positive.These ratings reflect the company’s enhanced credit profile as poor-quality insurance policies are replaced by high-quality mortgage business.
These ratings are also driven by the company’s diversified client portfolio and refined profitability standards. These positives are weighed down by lack of unrestricted dividend capacity, significant debt maturities and an unsettled tax dispute with the Internal Revenue Service.
According to the rating agency, the disbursement of the new seven-year notes and the concurrent tender offer for a portion of its 2019, 2020 and 2021 senior notes will improve Radian Group’s debt-maturity profile by reducing its outstanding debts.
Moody’s stated that the ratings could be upgraded if the parent’s debt-maturity profile is better aligned to its anticipated dividend capacity, adjusted financial leverage stays below 20% and Private Mortgage Insurer Eligibility Requirements are compliant with the rising capital adequacy.
Also, Moody’s warned that the ratings would be subject to downgrade if Radian Group is not compliant with the Private Mortgage Insurer Eligibility Requirements, shareholders’equity plunges by 10% over a period of 12 months, the parent company is unable to meet its debt service requirements and if there is any unfavorable result arising out of the Internal Revenue Service tax dispute.
Assessments of financial performance by credit-rating agencies have always played a vital role in instilling investor’s faith as well as in sustaining the credit worthiness of the companies. This rating by Moody’s exhibits the sturdy financial position of the company which would enable it to meet its debt obligation in the future as well as its likely capital needs.
Zacks Rank and Share Price Movement
Radian Group carries Zacks Rank #3 (Hold). Shares of Radian Group’s shares have increased 26.6% in a year’s time, outperforming the industry ‘s 23.2% growth. Nonetheless, we expect the company’s diversified product offerings and higher net premiums to drive its shares in the near term.
Stocks to Consider
Some better-ranked stocks from the insurance industry are Kemper Corp. KMPR , CNO Financial Group, Inc. CNO and MGIC Investment Corp. MTG .
Kemper Corp., which sports a Zacks Rank #1 (Strong Buy), provides property & casualty, and life & health insurance services in the United States. The company delivered positive surprises in the last four quarters, with an average beat of 57.5%. You can see the complete list of today’s Zacks #1 Rank stocks here .
CNO Financial Group, Inc. carries a Zacks Rank #2 (Buy) and delivered a positive earnings surprise in three of the trailing four quarters, the average beat being 6.7%.
MGIC Investment Corp., which carries a Zacks Rank #2, provides private mortgage insurance and ancillary services to lenders and government-sponsored entities in the United States. The company delivered positive surprises in the last four quarters, with an average beat of 31.9%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.