PMI Group Takes Control of FGIC

An investor group led by mortgage insurance giant PMI Group has agreed to buy Financial Guaranty Insurance Co. here from General Electric Capital for $2.16 billion.

After the deal closes, PMI will own

42% of FGIC, a top player in the municipal bond insurance market. FGIC is also an insurer of asset-backed deals, which includes subprime residential mortgages.

PMI competes against another GE unit, GE Capital Mortgage Insurance, Raleigh, N.C., in the mortgage insurance arena.

In the past, FGIC has dabbled in the mortgage business by purchasing mortgage bonds and subordinated pieces of mortgage-backed bonds.

The acquisition - which has been in the works for several months - will help further diversify PMI's operations. (In the second quarter, Walnut Creek, Calif.-based PMI suffered a 14% decline in earnings due to rising claim payments on delinquent residential loans.)

Besides PMI, two other mortgage insurers, MGIC and Radian, had expressed interest in FGIC, but both were not part of the final group of investors. PMI is the second largest MI in the U.S. MGIC is the largest.

The other co-investors in FGIC include the Blackstone Group, the Cypress Group (each will own 23%), CIVC Partners (7%), and GE, which will maintain a 5% stake in the new company.

FGIC, a triple-A rated company, will be operated independently of PMI's other businesses. PMI expects net income per share from the investment to range between $0.20 and $0.30 in 2004, assuming the transaction closes by Dec. 31, 2003.

PMI will be able to appoint five of FGIC's 14 directors, including the non-executive vice chairman slot, a position that likely will go to PMI chief executive Roger Haughton.

GE's decision to sell FGIC came last week, just a day before the company said another of its divisions, GE Commercial Finance, would buy Transamerica Finance Corp. from Dutch insurer Aegon. TFC has no direct role in residential finance.

In tandem with the FGIC deal, PMI said it would file a uniform shelf registration statement with the Securities and Exchange Commission.

The company said it expects to issue $207 million of "equity-linked units" and $100 million of common stock to fund $300 million of its investment in FGIC. Its overall investment in FGIC is valued at $607 million.

Goldman Sachs represented FGIC in the deal.

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