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Morning Commentary: MGIC, Radian in focus with shares lower; new Energy & Exploration quiet
By Rebecca Melvin
New York, July 11 – The convertibles of both MGIC Investment Corp. and Radian Group Inc. were in focus early Friday although not much was trading as shares of the mortgage insurers slumped, a Connecticut-based trader said.
But the convertible bonds were a little better on swap, the trader said.
The companies’ shares were under pressure following news that the Federal Housing Finance Agency’s newly proposed standards for the industry would mean their available assets would be materially less than the minimum requirements.
The development is “not a credit event, but more of an equity problem; and vol. is higher because of this,” the convertibles trader said.
MGIC said the proposal, which would require insurers backing mortgages owned or guaranteed by Fannie Mae and Freddie Mac to hold liquid assets of at least 5.6% of their risk exposure, is far in excess of what’s needed to reduce industry risk.
Radian said that the requirements are more onerous than its experience with defaults would suggest.
MGIC’s 2% convertibles due 2020 traded at 133.5 in the early going Friday, according to Trace data. Shares were down more than 10%.
Both Radian’s 2.25% convertibles due 2019 and Radian’s 3% convertibles due 2017 were last seen Thursday in the 140 to 141 context, which was down from levels around 144.5 to 144.75 previously.
Shares of the Philadelphia-based mortgage insurer were down 59 cents, or 4%, at $13.96 early Friday.
Elsewhere, Energy & Exploration Partners Inc.’s newly priced 8% pre-IPO convertibles were not heard in secondary market action on Friday. Energy & Exploration priced $375 million of the five-year convertible subordinated notes under Rule 144A via Citigroup Global Markets Inc., Credit Suisse Securities (USA) LLC and Global Hunter Securities LLC.
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