Fitch Puts MGIC Back On Negative Rating Watch

Fitch Ratings said it has placed the ratings of mortgage insurer MGIC Investment Corp. and its subsidiaries Mortgage Guaranty Insurance Corp., and MGIC Australia Pty Ltd. back on Rating Watch Negative after MGIC said it was deferring interest payments on its subordinated debenture bonds.

In October 2008 when Fitch reduced MGIC's financial strength rating to A minus from A plus, it gave the company a negative outlook and took MGIC off Rating Watch Negative.

MGIC said it would defer interest payments on its $390 million convertible junior subordinated debentures due 2063.

Fitch said it was assigning a 'BB' rating to the convertible junior subordinated debt reflecting the rating firm's view of “MGIC Investment's liquidity pressures and the risk that MGIC Investment would exercise its option to suspend payments.”

“Notwithstanding, the announced deferral on $390 million of MGIC Investment's debt obligations is an indicator of the increasing financial pressure facing the company and the mortgage insurance sector as a whole,” said Fitch.

The firm noted that MGIC Investment's liquidity remains adequate to meet intermediate term needs, with approximately $394 million of cash held at MGIC Investment as of Dec. 31, 2008.

“This level of cash serves to mitigate the risk of breaching certain covenants on the company's $200 million bank line by providing MGIC Investment with the ability to pay off the credit facility prior to a potential financial covenant breach (primarily risk-in force to capital limits) or at its due date in 2010,” said Fitch.

Fitch explained that it expects to resolve the Rating Watch Negative on the ratings of the holding company and its subsidiaries following a review of the company's liquidity and capital plans in conjunction with an updated review of the operating environment for mortgage insurance companies.

Mortgage insurer MGIC as of Dec. 31, 2008, maintained U.S. risk in force net of reinsurance of $54.5 billion and consolidated U.S. statutory capital of $3.7 billion for a risk to capital ratio of 14.7:1, according to Fitch.