Macquaie Sees Assured Guaranty And Radian Group Deal As 'Win-Win'

Macquarie commented Wednesday on the Assured Guaranty Ltd. AGO acquisition of Radian Group Inc’s RDN Radian Asset Assurance subsidiary for $810 million in cash.

Analysts Sean Dargan and Tanmay Gupta called it a “win-win for both parties.”

The transaction will be accretive to AGO’s EPS, operating shareholders’ equity and adjusted book value. AGC’s statutory capital is expected to increase by $425mn–$475mn. Assured Guaranty will use excess capital “trapped” in its insurance subsidiary. Notably, AGO received permission from regulators to finance the acquisition directly from the AGC sub, which wrote a check to Radian,” according to the analyst note.

Dargan noted that “Radian’s motivation in doing this deal was to more easily comply with the upcoming implementation of the FHFA’s Private Mortgage Insurance Eligibility Requirements. Following the completion of the transaction, Radian Guaranty’s Available Assets (as per PMIERs) are expected to increase by roughly $790 million.”

The firm maintained a $30 price target on AGO and raised its earnings estimates for 2015E to $2.62 from $2.50 and the 2016E to $2.90 from $2.75 to reflect accretion from the Radian deal and introduced 2017E of $2.70.  

The firm maintained an $18 price target on RDN and lowered its earnings estimates for 2014E to $1.72 from $1.73 to reflect operating statistics. It also lowered its 2015E to $1.49 from $1.53 and the 2016E to $1.71 from $1.80 “to reflect a loss of FG premium with no offset in interest expense.” The analysts introduced 2017E of $1.86.

Both stocks were rated Outperform.

Assured Guaranty Ltd. recently traded at $26.35, up 1.15 percent.

Radian Group Inc recently traded at $16.70, up 0.60 percent.