Investors should buy Assured Guaranty Ltd. shares on the prospect that the bond insurer acquires a unit from mortgage guarantor Radian Group Inc., analysts from Macquarie Group Ltd. said.
"Such a transaction would be mutually beneficial," analysts Sean Dargan and Tanmay Gupta said in a note yesterday. Assured Guaranty "could put fallow capital in its insurance subsidiaries to work, generating more surplus and excess capital."
Radian is seeking a buyer for its bond unit as the Philadelphia-based company narrows its focus and prepares for proposed private mortgage insurance eligibility requirements, or PMIERs. While a sale would help the company comply with capital rules, a deal priced at $600 million would reduce shareholder’s equity by $400 million, the analysts wrote.
"We recommend accumulating AGO shares ahead of any possible transaction," the analysts said, using Bermuda-based Assured Guaranty's stock ticker. As for Radian "we would recommend waiting until after a deal is announced as we suspect a negative reaction to lower book value per share."
Radian has said it is looking to fill an $850 million capital shortfall under the PMIERs, which are expected to go into effect in 2015. The company said in July that it hired Goldman Sachs Group Inc. as it considers the sale of the Radian Asset unit. Emily Riley, a spokeswoman for the insurer, declined to comment on potential buyers or timing of the sale.
"Radian Asset is a solid over-capitalized company with strong economic value," Radian Chief Executive Officer S.A. Ibrahim said in a conference call Oct. 30. "We are actively working on a number of alternatives to monetize or to otherwise utilize Radian Assets in a way that will maximize its value."
Ashweeta Durani, a spokeswoman for Assured Guaranty, didn't immediately respond to messages seeking comment.
Assured Guaranty climbed 0.9% to $25.94 at 10:20 a.m. in New York trading, extending its gain for the year to 10%. Radian is up 23% since Dec. 31 and was little changed today.
