Radian's Move is Cause for Applause

By: Dr. Jay H. Abrams
Chief Municipal Credit Analyst

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Radian's Move is Cause for Applause

By Dr. Jay H. Abrams, Chief Municipal Credit Analyst

Radian Group, Inc. has invested an additional $150 million in bond insurer Asset Guaranty Insurance Co. The move strengthens the company, now known as Radian Asset Assurance, Inc. (RA), and was greeted enthusiastically by the two agencies that rate Radian.

This latest news is good for RA, good for worthwhile bond issuers seeking credit enhancement and terrific news for investors who have come to know and trust the Radian and Asset Guaranty names.

The endorsement by S&P and Fitch of this latest move underscores our earlier support for the company. In our analysis of 11/01/01, we said Radian Group's purchase of Asset Guaranty made the company stronger than ever.

A good company gets better

Radian's latest move, infusing the company with $150 million in capital, further enhances our support for the company.

RA's investment increases the capital base of its domestic municipal bond business and helps the company expand its presence in the burgeoning international credit enhancement market.

S&P, in affirming the enriched bond insurer's rating, noted that "industry conditions are stable and [Radian Asset] can operate under a considerably wide range of circumstances without any effect on its ratings." Fitch agreed, citing the insurer's parent, Radian Group, as having total assets of $4.2 billion and shareholders equity of $2.2 billion.

Unique market niche

Radian Asset's business plan is purposely different from "AAA" bond insurers. Radian identifies municipal issuers that fall in the low-investment grade or high non-investment grade rating categories and have strong stories to tell.

Most of RA's insured credits are occasional issuers, concentrated in the small utility, health care, higher education, and special district sectors, or have other distinctive characteristics that make them strong candidates for Radian Asset's interest. The "AAA" insurers, by contrast, are in sharp competition with one another. They favor repeat borrowers, are partial to large issues and look for higher total insured volumes each year.

Because Radian Asset's insured credits are smaller and require greater credit review scrutiny, Radian's insurance premiums are often higher than would be the case for its "AAA" rated brethren. Known on Wall Street for its strong analytical team, RA carefully assesses every issue it insures. Site visits, management meetings and intensive review of underwriting decisions have served to provide a strong portfolio of insured credits.

In sum, Radian Asset's purchase last year by the Radian Group has been a vote of confidence in not only the former Asset Guaranty, but in its future. With parent Radian's deep pockets and earnings history, combined with RA's market niche strategy, the future looks bright for this bond insurer and gives tax-free bond investors cause for applause.  

1/16/2002

*_ANALYST CERTIFICATION
SEC Regulation AC_*
I, Jay H. Abrams, hereby certify that the views expressed in these research reports accurately reflect my personal views about the subject securities and issuers. I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendations or view expressed in these reports.*__*

*_IMPORTANT DISCLOSURE _*
These reports have been prepared and issued by FMSbonds, Inc. and approved for publication. Any unauthorized use or disclosure is prohibited.

These research reports are prepared for general information and are circulated for general information only. They do not take into consideration the specific investment objectives, financial situation and the particular needs of any specific person who may receive these reports.

Neither the information nor any opinion expressed constitutes an offer, or an invitation to make an offer, to buy or sell any securities or any options, futures, or other derivatives related to such securities ("related investments"). Officers of FMSbonds, Inc. or one of its affiliates may have a financial interest in securities of the issuer(s) or in related investments.



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