Radian Group (RDN) Tops Q2 EPS by 5c; Updates on Capital, Liquidity

Radian Group (NYSE: RDN) reported Q2 EPS of $0.40, $0.05 better than the analyst estimate of $0.35. Revenue for the quarter came in at $330.42 million versus the consensus estimate of $227.3 million.

CAPITAL AND LIQUIDITY UPDATE

Radian Group maintains approximately $735 million of currently available liquidity.

• Radian completed a series of actions in the second quarter to strengthen the company’s capital structure, including to reduce its overall cost of capital, improve its maturity profile and facilitate improved credit ratings. The capital actions had four components:
  • Radian paid $127 million in cash and delivered 28.4 million shares for a total consideration value of $657 million to purchase an aggregate face value of $389 million of Radian’s 2017 Convertible Notes.
  • In connection with the purchase of the convertible notes, Radian terminated a corresponding portion of the Capped Call it had entered into in 2010 in connection with the initial issuance of its 2017 Convertible Notes, for proceeds to Radian of $12 million in cash and 2.3 million shares of Radian common stock.
  • The purchase of the convertible notes was funded by the issuance of Senior Notes with a coupon of 5.25% and a maturity date of 2020, resulting in net proceeds of $343 million.
  • A portion of the proceeds generated from the issuance of the Senior Notes was used to enter into an Accelerated Share Repurchase Program (ASR), in order to reduce the dilutive impact of the shares issued in connection with the purchase of the convertible notes. The ASR was executed for a cash payment of $202 million in exchange for 9.2 million intial shares and an estimated additional 1.6 million shares upon completion of the ASR, assuming an average stock price of $18.68.

As noted above, these actions resulted in a loss on induced conversion and debt extinguishment of $91.9 million, an expected reduction in the company’s annual interest expense of approximately $16 million, and an expected increase in fully diluted share count of approximately 2.8 million shares. Additional details related to these capital actions may be found on Slide 11 of the second quarter presentation slides.

• Book value per share at June 30, 2015, was $11.28, compared to $11.53 at March 31, 2015. The decrease in book value from the first quarter of 2015 was related to the issuance of shares resulting from the capital actions noted above.
• As of June 30, 2015, Radian Guaranty’s risk-to-capital ratio was 16.5:1 and statutory capital was $2.0 billion.
• As of June 30, 2015, a total of $2.7 billion of risk in force outstanding had been ceded under quota share reinsurance agreements in order to proactively manage Radian Guaranty’s risk-to-capital position. Radian has ceded the maximum amount of NIW under these agreements and has not ceded any premium on new business in 2015. As discussed above, net premiums earned in the second quarter included an accrual for a $5.8 million profit commission based on experience to date for the company’s Second Quota Share Reinsurance Transaction, where Radian expects to exercise its option to recapture 50 percent of the ceded risk on December 31, 2015.

For earnings history and earnings-related data on Radian Group (RDN) click here.

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