* Says new co may be backed by private capital
* Radian to act as management company
* Radian shares down more than 4 pct
(Adds quotes, clarifies cause of insurance meltdown)
By Tanya Agrawal and Lisa Lambert
Sept 26 Radian Group Inc is looking to
form a new public finance mutual bond insurance company with the
National League of Cities (NLC) in the hope of re-igniting a
sector that burned out during the financial crisis.
NLC, a non-profit organization that represents civic leaders
from across the country, has sought a collective form of
insurance to replace the models that faltered during the credit
crunch and to help small issuers.
"We've been working for over three years, looking at the
whole question of the availability of bond insurance," NLC's
Executive Director Don Borut told Reuters. "With the companies
that were providing it basically losing their own ratings, there
was a need (for this)."
Borut said Radian would act as the management company and
help attract private capital to start up the firm. Bond issuers
seeking to insure their debt would pay fees on top of their
premiums. Over time, they will become owners.
"Over time, as bond issuers buy insurance and make payments
into the company the risk to private capital will go down,"
In June, Radian closed on a deal to buy the dormant bond
insurance operations of Macquarie Group for $82 million
with an eye toward either writing new business or reinsuring
It had announced last February that its unit, Radian Asset
Assurance, would purchase Macquarie's Municipal and
Infrastructure Assurance Corp (MIAC).
Radian Asset insured municipal bonds and structured finance
products until the third quarter of 2008 when it stopped writing
new business, like many other insurance companies during the
Macquarie formed MIAC to fill a gap in the market. However,
MIAC never actually wrote any business, despite having licenses
in 36 states and Washington, D.C.
"The fact that it had already cleared some of the
regulatory hurdles made it an attractive partner to the NLC,"
At one time, insured bonds made up about half of the
municipal debt market, with issuers using the guarantees to push
up their debt ratings.
Because of their exposure to shaky mortgage-related debt,
most bond insurers, namely MBIA and Ambac ,
lost their top ratings during the credit crunch and financial
crisis. Issuers backed off buying insurance.
The new company will have to have a rating of AA or better,
Borut said. That could be difficult as issuers most likely seek
out insurance that have lower ratings but the mutual insurance
structure will rely on them to support the creditworthiness of
"We're going to be selective as we begin this process that
these are credible municipalities," Borut said.
By the end of 2010, issuers were only using one insurer --
Assured Guaranty Municipal Corp -- and only 6.2 percent
of new debt sales were insured.
Assured was able to maintain its AAA credit rating from
Standard & Poor's Ratings Services until last October.
Currently, it is writing insurance for issuers rated A down to
BBB that sell small amounts of debt.
NLC has found, though, that some demand still exists for
insurance, especially from bond pools, Borut said.
Shares of Radian were trading down more than 4 percent at
$2.11 in afternoon trade Monday on the New York Stock Exchange.
(Reporting by Tanya Agrawal in Bangalore and Lisa Lambert in
Washington; Additional reporting by Ben Berkowitz in New
York; Editing by Supriya Kurane)