PHILADELPHIA--(BUSINESS WIRE)--Radian Group Inc. announced today that, following the pricing of its 5.250% Senior Notes due 2020 (the 2020 Senior Notes), it has entered into privately negotiated agreements with certain of the holders (Sellers) of its 3.000% Convertible Senior Notes due 2017 (the 2017 Convertible Notes) to purchase an aggregate of $389 million principal amount of 2017 Convertible Notes for a combination of cash and shares of Radian common stock (the Convertible Purchase). Radian plans to fund the Convertible Purchase with $127 million in cash (plus accrued and unpaid interest) and by issuing to the Sellers approximately 28.4 million shares of common stock. Following the Convertible Purchase, which is expected to close by June 23, 2015, subject to the satisfaction of customary closing conditions, $61 million principal amount of the 2017 Convertible Notes will remain outstanding.
In order to reduce the dilutive impact of the Convertible Purchase, Radian also intends to enter into an accelerated share repurchase program (ASR) to repurchase an aggregate of approximately $202 million of Radian’s common stock. Under the ASR, Radian expects to receive an upfront delivery of approximately 9.2 million shares with the total number of shares ultimately delivered to Radian to be based on the volume-weighted average price of Radian’s common stock during the term of the transaction, less a discount and subject to adjustments pursuant to the terms and conditions of the program. Radian expects to fund the ASR with a portion of the net proceeds from the 2020 Senior Notes.
In connection with the purchase of the 2017 Convertible Notes, Radian is terminating a corresponding portion of the Capped Call it had entered into in 2010 in connection with the initial issuance of the 2017 Convertible Notes, for expected proceeds of approximately $12 million in cash and 2.3 million in shares of Radian common stock.
“We are pleased to address our corporate capital structure in a way that will reduce our overall cost of capital, while improving the maturity profile of our debt,” said Radian’s Chief Executive Officer S.A. Ibrahim. “These actions help to improve our financial position, underscore our commitment to creating stockholder value and reinforce our confidence in Radian’s long-term growth and financial performance.”
The purchases of the 2017 Convertible Notes are expected to result in an estimated pre-tax, non-operating charge of approximately $92 million from this transaction in the second quarter of 2015. This estimated charge represents
- the $35 million market premium paid to Sellers of the 2017 Convertible Notes in excess of the conversion value for the purchased 2017 Convertible Notes,
- the $53 million difference between the fair value and the carrying value of the liability component of the purchased 2017 Convertible Notes, and
- the $4 million net impact of transaction costs and unamortized debt issuance costs on the purchased 2017 Convertible Notes.
Excluding the charge related to the Convertible Purchase, pre-tax savings related to interest and amortization of debt issuance costs on the purchased 2017 Convertible Notes are expected to be approximately $86 million between the closing date of the Convertible Purchase and the original maturity date of the purchased notes in November 2017. After consideration of the anticipated ASR*, Radian expects the combination of the 2020 Senior Notes issuance, the purchase of the 2017 Convertible Notes and the consideration to be received from the Capped Call termination to result in
*assumes, solely for purposes of these estimates, that Radian’s stock price is $18.68 during the term of the ASR
- a net increase in available holding company liquidity of approximately $24 million,
- a net increase in long-term debt of approximately $16 million,
- a net decrease in the equity component of currently redeemable convertible senior notes of approximately $55 million,
- a net increase in stockholders’ equity of approximately $89 million, which includes the consideration to be received for the Capped Call termination, and
- an estimated net increase in fully diluted shares outstanding of approximately 2.8 million. This estimate includes the actual net increase in shares outstanding of 15.3 million, of which, absent the Convertible Purchase, approximately 12.5 million would have already been included in the calculation of diluted earnings per share related to the conversion premium of the 2017 Convertible Notes, assuming an average stock price of $18.68.
The press release is for information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy any security of the company, nor will there be any sale of any such security in any jurisdiction in which such offer, sale or solicitation would be unlawful.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market.
FORWARD-LOOKING STATEMENTS
All statements in this report that address events, developments or plans that we expect or anticipate may occur in the future, including the company’s share repurchase plan, are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the U.S. Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as "anticipate," "may," "will," "could," "should," "would," "expect," "intend," "plan," "goal," "contemplate," "believe," "estimate," "predict," "project," "potential," "continue," "seek," "strategy," "future," "likely" or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including those detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2014 and in our subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this press release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.
