Radian Group Inc. RDN recently announced that it will redeem its 2.25% Convertible Senior Notes, which are scheduled to mature on 2019. Of these notes, a principal amount of about $68 million is outstanding. The notes will be redeemed on Jan 27, 2017.
The notes will be redeemed at par, along with accrued and unpaid interest from the last interest payment date of Sep 1, 2016. Holders of the notes may also surrender such notes for conversion. In that case, the conversion rate is 94.3396 shares of the company’s common stock per $1,000 principal amount of Notes.
The notes, surrendered for conversion or redemption, will be settled in cash. Moreover, the company will utilize its available liquidity to fund the payment for redemption as well as any notes surrendered for conversion.
As of Sep 30, 2016, Radian Group had $483 million of available liquidity. Post completion of the transaction, this transaction will lower the company’s total number of diluted shares by about 6.4 million. As a result, the total reduction in diluted shares associated with the company’s 2016 capital actions and including the share buyback completed in the first quarter of 2016 will stand at about 29.5 million shares.
These moves are in tandem with the company’s plan to improve capital structure, even distribution of debt maturities and efforts to return to investment grade ratings. Radian Group stated once the capital plan culminates, the total number of diluted shares will lower by about 12% in 2016.
Radian Group exited the third quarter of 2016 with debt of $1.1 billion, which reflects an improvement from the 2015-end level of $1.2 billion. Additionally, debt-to-capital ratio improved significantly by 590 basis points. The aforesaid redemption is expected to further improve the company’s debt balance. Also, these reflect the company’s intention to reduce its dependence on debt. The redemption of debt will also lower the interest burden, thereby aiding margin expansion. A lower debt burden coupled with improving liquidity will further strengthen the company’s balance sheet.
However, Radian Group has underperformed Zacks-categorized Multi line industry, year to date. Intense competition and escalating expenses have contributed to the underperformance. Nonetheless, rising estimates hint that the stock is gearing up for turnaround given its declining delinquency, lower levels of paid claims, improving risk-based capital ratio and return to investment grade ratings.
Currently, Radian Group carries a Zacks Rank #3 (Hold).
Stocks to Consider
Some better-ranked stocks from the insurance industry include Alleghany Corporation Y, NMI Holdings, Inc. NMIH and Arch Capital Group Ltd. ACGL. Each of these stocks sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Alleghany Corporation deals with Property & Casualty reinsurance and insurance businesses in the U.S. and internationally. The company delivered positive surprises in three of the last four quarters with an average beat of 20.52%.
NMI Holdings offers private mortgage guaranty insurance services in the U.S. The company delivered positive surprises in all of the last four quarters with an average beat of 62.80%.
Arch Capital offers property, casualty, and mortgage insurance and reinsurance products worldwide. It delivered positive surprises in all of the last four quarter with an average beat of 9.27%.
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