DOW JONES NEWSWIRES
Moody's Investors Service warned it might downgrade MGIC
Investment Corp.'s (MTG) key operating unit further into junk
territory in the wake of MGIC's plan to fund another unit with $1
billion to write new mortgage-insurance policies.
Equity traders were emphatically unconcerned with the warning,
sending shares up 9.8% to $5.16; MGIC rose 19% Thursday after
releasing second-quarter results and saying it received permission
from the state of Wisconsin to give the planned unit $1 billion so
it can start writing policies.
That would put Mortgage Guaranty Insurance Corp. in run-off
status as it would defer to MGIC Indemnity Corp. in writing new
policies. As such, Moody's put Mortgage Guaranty on watch for
downgrade and MGIC Indemnity on watch for upgrade. Both are
currently at Ba2, two steps into junk territory.
At the same time, MGIC was given a negative ratings outlook - it
is five notches lower at B3, or the verge of highly speculative
territory.
The restructuring prompted Fitch Ratings on Thursday to
downgrade Mortgage Guaranty to the verge of junk. Critical to the
restructuring will be whether MGIC Indemnity is designated as an
eligible mortgage insurer for Fannie Mae (FNM) and Freddie Mac
(FRE).
Moody's said mortgage challenges persist, as do concerns about
what the role of Fannie Mae, Freddie Mac and mortgage insurers will
be in the future. It added that Mortgage Guaranty losing the $1
billion reduces the available liquidity the unit has to pay
potential claims. They have surged industrywide for more than a
year as home foreclosures have surged.
-By Jay Miller, Dow Jones Newswires; 212-416-2355;
jay.miller@dowjones.com