Moody's Puts MGIC's Insurance Unit On Watch For Downgrade

   DOW JONES NEWSWIRES 
 

Moody's Investors Service warned it might downgrade MGIC Investment Corp.'s (MTG) key operating unit further into junk territory in the wake of MGIC's plan to fund another unit with $1 billion to write new mortgage-insurance policies.

Equity traders were emphatically unconcerned with the warning, sending shares up 9.8% to $5.16; MGIC rose 19% Thursday after releasing second-quarter results and saying it received permission from the state of Wisconsin to give the planned unit $1 billion so it can start writing policies.

That would put Mortgage Guaranty Insurance Corp. in run-off status as it would defer to MGIC Indemnity Corp. in writing new policies. As such, Moody's put Mortgage Guaranty on watch for downgrade and MGIC Indemnity on watch for upgrade. Both are currently at Ba2, two steps into junk territory.

At the same time, MGIC was given a negative ratings outlook - it is five notches lower at B3, or the verge of highly speculative territory.

The restructuring prompted Fitch Ratings on Thursday to downgrade Mortgage Guaranty to the verge of junk. Critical to the restructuring will be whether MGIC Indemnity is designated as an eligible mortgage insurer for Fannie Mae (FNM) and Freddie Mac (FRE).

Moody's said mortgage challenges persist, as do concerns about what the role of Fannie Mae, Freddie Mac and mortgage insurers will be in the future. It added that Mortgage Guaranty losing the $1 billion reduces the available liquidity the unit has to pay potential claims. They have surged industrywide for more than a year as home foreclosures have surged.

-By Jay Miller, Dow Jones Newswires; 212-416-2355; [e-mail]