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Impairment May Imperil Merger for Sherman’s Parents

MGIC Investment Corp. advised the New York Insurance Department on Tuesday that its management has determined the company is not obligated to complete its pending merger with Radian Group Inc. in light of a financial impairment at a related firm that invests in the subprime mortgage market.

MGIC concluded last week that the value of its investment in C-BASS (Credit-Based Asset Servicing and Securitization LLC) – which itself invests in the credit risk of subprime mortgages – has been materially impaired.

MGIC and Radian each also have ownership stakes in Sherman Financial Group LLC, a debt purchaser and accounts receivable management firm based in Charleston, S.C., that was ranked the No. 1 debt buyer in CCR’s Industry Rankings this month.

Radian informed MGIC that it disagrees with MGIC management's preliminary assessment.

“Both MGIC and Radian own 46% of C-BASS, and both companies announced impairments last week,” Radian said in a news release Tuesday. “Radian is not aware of any developments that would impact MGIC’s obligation to close the merger.”

However, MGIC's management is reviewing other developments that may affect its obligation to close the deal. In connection with management’s analysis, MGIC is requesting additional information from Radian. MGIC’s management does not expect its analysis will be completed until next week.

Stockholders of both companies had already approved the merger. “We continue to believe the transaction is in their best interests,” Radian said.

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