MGIC and Radian Deal Off, Sherman Impact Unclear

Competitors and partners MGIC Investment Corp. and Radian Group, Inc. called off their merger early Wednesday, another apparent victim of the downturn in the U.S. housing market. The two are major investors in Sherman Financial Group LLC, a tight-lipped, privately held debt purchasing firm that is considered one of the largest in the industry.

Milwaukee-based MGIC announced in February it would pay nearly $5.5 billion for Radian in an all stock deal. But the stock of mortgage and bond insurer MGIC has fallen by more than 50 percent from $70.09 in February to $30.34 yesterday. Radian, a credit risk management provider, has seen its stock plummet from $66.39 early this year to $18.11 yesterday.

The primary stumbling block to the MGIC-Radian deal appeared to be C-BASS, a joint venture between the two. C-BASS invested in securities backed by subprime mortgage loans and its value cratered as the subprime market declined this year, according to press reports. MGIC announced in August it would not go through with the merger due to the problems at C-BASS.

MGIC and Radian are also major investors in Sherman. In an April filing with the U.S. Securities and Exchange Commission, MGIC reported that it and Radian each held “a 40.96% investment in the Class A Common Units and a 50% investment in the Preferred Units of Sherman.” Sherman management owns the rest of the firm, according to the filing.

However, MGIC and Radian planned to sell off some of their Sherman holdings if their merger went through. “… (T)he combined company intends to sell a portion of the acquired interest, including all of Radian’s preferred interest, and MGIC’s preferred interest, to reduce ownership in … Sherman to 49.9%,” the filing reports.

Neither MGIC nor Radian announced plans regarding Sherman in light of the merger’s failure. MGIC, Radian and Sherman didn’t return calls. 

Charleston, S.C.-based Sherman is a debt purchaser and accounts receivables management firm. It had 2006 revenues of nearly $1.3 billion, according to Collection and Credit Risk magazine.