Triad Seeking Capital To Maintain MI Viability

Triad Guaranty Corp. here, the smallest of the private mortgage insurers, raised the possibility of the company going into run-off and ceasing writing new mortgage insurance policies. This disclosure came in the company's delayed 10-K filing.

The filing had been on hold because Triad said it was engaged in discussions with an unnamed potential investor. However, it appears those negotiations were fruitless. The filing states the company needs to "significantly augment our capital resources in the second quarter of 2008 in order to preserve our ability to continue to write new insurance."

Meanwhile, according to the data collected by the trade group for the private mortgage insurance industry, February 2008 had the lowest amount of total primary new insurance written in a year.

The Mortgage Insurance Cos. of America reported for the first time in a year total primary insurance written fell below $20 billion. There was $19.2 billion written in February 2008, with $19.1 billion coming through the traditional channel. This was the lowest amount written in the traditional channel since April 2007.

In February 2007, there was $12.6 billion of traditional and $4.3 billion of bulk insurance written.

The bulk channel is suffering because of the problems in the subprime marketplace; just 223 certificates or policies were issued during the month.

Triad did give a glimpse into the alternatives it is looking at. "The proposals that have been considered involve structures under which Triad would implement a 'run-off' plan and a newly formed mortgage insurer would acquire certain of Triad's employees, infrastructure, sales force and insurance underwriting operations. In addition, we would cease writing new business. These proposals do not involve a direct investment in Triad. Completing any such transaction would be subject to numerous conditions, including obtaining necessary consents and approvals from our stockholders, the Illinois Department of Insurance and other state insurance regulatory authorities, the GSEs, rating agencies and other third parties," the 10-K said.

In a subsequent Securities and Exchange Commission filing, Triad revealed it has repaid the $80 million borrowed on an unsecured credit facility and has terminated its agreement with the lenders. It said it took this step to avoid violating any of the agreement's covenants in the future.

Meanwhile, both Fitch and Moody's have cut the company's ratings. Fitch reduced the insurer financial strength rating from AA- to BBB-, while Moody's cut its IFS to Baa3 from Aa3, and kept the rating on review for a further possible downgrade.

In the Fitch statement, issued before Triad revealed it had repaid the loan, the rating agency said it believed if the mortgage insurer repaid the loan, it would maintain sufficient liquidity to pay debt service on its long-term debt for several years.

Fitch noted that more than three-quarters of Triad's primary risk-in-force was from loans originated in 2005 or later.

Moody's commented, "The downgrade also reflects the increasing possibility that the company will be unable to underwrite new business at a time when pricing conditions are particularly attractive for mortgage insurers.

"Moody's believes that Triad is more weakly positioned than its peers with respect to business franchise, capital adequacy, prospective profitability and financial flexibility."

The Fitch ratings cut has caused Freddie Mac to require Triad to come up with a remediation plan. Under a new Freddie Mac policy, Triad was not automatically dropped from a Type I to a Type II insurer when the rating was cut. (c) 2008 Mortgage Servicing News and SourceMedia, Inc. All Rights Reserved. http://www.mortgageservicingnews.com/ http://www.sourcemedia.com/

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