Boston, MA 08/08/2014 (wallstreetpr) – According to reports, Radian Group Inc (NYSE:RDN) has decided to hedge risk against losses on collateralized loan obligation. For this cause, the company bought $100 million worth of default protection on an MBIA Inc.
About Radian:
MBIA Insurance Corp. is a leading insurance giant, but RDN is not far behind. It is placed on the second place with a guarantee of $377 million on a CLO. Reports say that CLO named Zohar is backed by loan to smaller companies. According to Derek Brummer, the Chief Risk Officer of the company,” RDN purchased 50% protection in August 2013 while the other 50% was purchased couple of months back in June.”
Derek disclosed this information only after Radian Group Inc (NYSE:RDN) shared the details with analysts over a conference call. In the words of Derek,” After looking at their structured-finance portfolio and exposure to transaction, we think that there is a huge risk of defaulting.” RDN has a strong asset book; therefore, it can take such risks to enhance the overall valuation.
MBIA Story:
MBIA insurance was affected very badly when the global financial crisis hit the US market a few years back. The main reason behind its bad condition was sourced mortgage transactions. There was a time when MBIA was considered as the best insurer in the market and industries gave preference to anyone backed by MBIA. But financial turmoil took away everything that it had and its credit rating was cut to junk. Regulators did no longer believe on its ability, therefore, it was banned from the business of guaranteeing bonds.
CLOs are known to pool high valued corporate loans and the amount generated through them is used to finance corporate buy-outs. The type of loan that RDN and MBIA guaranteed is a middle-market CLO which is used for high-value funding. According to Derek, companies that are tied up with CLO may face difficulties while arranging loan at a later stage.
