MGIC up after questioning Radian deal; Luminent down trailing default notices; Microtek jumps

By Sheri Kasprzak

New York, Aug. 8 - MGIC Investment Corp. is in the process of leaving behind plans to merge with Radian Group Inc. and that's good news, at least for MGIC, according to sellside traders.

The two companies were in talks to merge into a mortgage and credit risk insurance company to be called MGIC Radian Financial Group Inc.

"It's certainly positive for MGIC," said one New York-based trader. "They're not going to acquire a company that's going to be [worth] zero. People were shorting the stock and the whole group is going to straighten up. MGIC is going to straighten up."

"Absolutely, it's positive for MGIC," said another trader at about 11 a.m. ET. "This whole deal was bad news for them and now that they're backing out, it can only be positive. They're stock is way, way up already."

On Wednesday, MGIC's stock cranked up by 17.39%, or $6.06, to end the session at $40.90 (NYSE: MTG). By 9:50 a.m. ET, MGIC's stock had already put on 11.45% but Radian's stock, at the same time, was down by 21.97%. Radian's stock went on to come back later in the day, gaining 38 cents, or 1.84%, to close at $21.00 (NYSE: RDN). In after-hours activity, Radian's stock slipped by 40 cents.

On Tuesday, MGIC announced that it notified the New York Insurance Department that it felt it wasn't obligated to seal the deal with Radian on their pending merger.

MGIC, according to a news release, said the impairment announced by joint-venture Credit-Based Asset Servicing and Securitization LLC was at the root of the choice to pull out. Radian, however, disagrees, according to a statement.

All is not said and done yet, however. MGIC's board of directors will make the final determination of whether or not to close the merger.

Radian is set to provide additional information which will allow MGIC's management to finish its analysis of the situation. That analysis, according to an MGIC statement, is set to wrap up on Aug. 13.

MGIC's shareholders have already approved the merger. Under the terms of the planned merger, each share of Radian would be exchanged for 0.9658 shares of MGIC stock, based on Feb. 5 closing stock prices.

MGIC is a holding company and private mortgage insurer based out of Milwaukee and Radian is a Philadelphia-based credit-risk management company.

Luminent hit with suit

In other mortgage news, Luminent Mortgage Capital Inc.'s stock turned around on Wednesday morning after the company suspended dividend payments due to increased margin calls on Tuesday.

Even so, trading was halted around midday Wednesday pending news. Although one analyst said he felt the news would be a bankruptcy announcement, Luminent announced it has received notices of default from two repo lenders. It repeated that it is continuing to explore all of its alternatives in connection with its sudden liquidity issues, according to a company news release.

Luminent is set to conduct its earnings conference call at 1 p.m. ET Thursday.

Before the halt, the stock gained 27.78%, or 30 cents, at $1.38 (NYSE: LUM). In pre-market action, the stock gained as much as 31.48% and when the market opened, the stock jumped by as much as 50%. By the end of the day, though, the stock had given up the gains and then some. The stock ended down 13 cents, or 12.04%, to close at $0.95.

After Luminent announced Tuesday that it wouldn't be able to pay its dividends, its stock dove by 75.34%, or $3.30, to close at $1.08.

Volume also jumped on Wednesday with 4,117,600 shares traded before the halt, compared with the average 1,743,380 shares.

The move comes after the mortgage lender's stock plummeted by nearly 80% on Tuesday following the suspension of its dividend payments.

"It was speculated that the company would go out of business," said one sellside trader on Wednesday. "Maybe that's not the case and the equity has some value. That would be, not the only reason, but one of the biggest reasons."

Headed for bankruptcy?

One analyst, Steven DeLaney of JMP Securities, said he felt the announcement for which the stock was halted would be a bankruptcy announcement.

JMP downgraded Luminent on Tuesday to market underperform from market outperform and set a target price of $3.00.

"Early this morning, it did trade up today," DeLaney said in an interview Wednesday afternoon. "They have a book value per share in excess of $10. Clearly, it has current liquidity issues and the question investors want to figure out is, what is the fair value, not necessarily the distressed value. They want to determine what value, if any, would be left for the shareholders should the company file for bankruptcy."

If the company does file for bankruptcy, DeLaney pointed out that the company could operate in bankruptcy as well as outside of bankruptcy since Luminent is an investment company and does not make loans.

Luminent's stock slid by as much as 85% on Tuesday and had tongues wagging that company may be going under, sellside traders said.

The mortgage financing REIT even went as far as releasing an assuring statement claiming that quality, not subprime, mortgages make up the bulk of its portfolio and that the company has experienced fewer delinquencies than prime lenders because of stringent credit checks.

DeLaney said he feels the statement released Tuesday by Luminent is an accurate one, noting that several mortgage lenders are in the same boat as Luminent because of liquidity woes in the greater mortgage-lending market.

The best move now for Luminent, DeLaney said, is to pay off its lenders after having "an orderly sale of its assets."

Elsewhere in mortgage lending news, Countrywide Financial Corp.'s stock continued to make gains on Wednesday, a day after the mortgage lender announced it will take over the mortgage lending operations of HomeBanc Corp.

"Basically, this is the shot in the arm that Countrywide needed," said one sellside trader on Wednesday of the positive move in Countrywide's stock. "It has been one of the best moves they've made so far this year."

On Wednesday, the stock gained 6.44%, or $1.76, to close at $29.11 (NYSE: CFC). The stock fell by 34 cents in after-hours trading. On word of the HomeBanc news Tuesday, the stock climbed by 60 cents, or 2.24%, to end at $27.35.

Microtek's stock jumps

A day after Microtek Medical Holdings, Inc. agreed to be acquired by Ecolab Inc., Microtek's stock took off, gaining 27.93%, or $1.31, to end at $6.00 on Wednesday (Nasdaq: MTMD).

On Tuesday, Ecolab said it will buy Microtek, an Atlanta-based company that makes infectious and hazardous waste-management products for the healthcare industry, for $6.30 per share in a deal valued at $274 million.

The transaction is expected to close in the fourth quarter.

Ecolab, which is based in St. Paul, provides cleaning, sanitizing, food safety and infection prevention products and services. Ecolab's stock gained 54 cents, or 1.27%, to close at $43.19 (NYSE: ECL).

© 2015 Prospect News.
All content on this website is protected by copyright law in the U.S. and elsewhere. For the use of the person downloading only.
Redistribution and copying are prohibited by law without written permission in advance from Prospect News.
Redistribution or copying includes e-mailing, printing multiple copies or any other form of reproduction.