Blackstone (BX), a private-equity funded investment bank based in New York, is increasing its substantial position in housing again, as funds affiliated with Blackstone Tactical Opportunities are set to acquire a “significant equity stake” in The PMI Group, a provider of mortgage insurance.
The PMI Group is the Delaware-based holding company for PMI Mortgage Insurance Co.
PMI entered into Chapter 11 bankruptcy reorganization in 2012, after facing business difficulties for more than a year. In 2011, the Arizona Department of Insurance seized the firm and later PMI entered into bankruptcy reorganization.
In 2013, PMI exited bankruptcy after a Delaware bankruptcy judge accepted the firm’s reorganization plan, which included paying creditors $200 million.
Parts of PMI’s exit from bankruptcy involved the sale of its CMG Mortgage Insurance unit to Arch Capital Group. When the deal was announced, Arch's U.S. mortgage insurance unit and affiliates were expected to pay approximately $300 million for PMI's assets.
According to a release from PMI, PMI Mortgage Insurance Co. currently continues its operations under the receivership of the Arizona Department of Insurance.
PMI said that in connection with the purchase of a significant equity stake in PMI, Blackstone will provide PMI with a loan to be used for working capital.
In exchange for the loan, Blackstone will have the right to participate in future equity offerings from PMI and is expected to nominate a director to PMI’s board of governors.
In the release, PMI said that it intends to use the funds provided by Blackstone to pursue its investment strategy, which may include raising additional capital.
“We are delighted to announce Blackstone’s strategic investment in PMI,” PMI’s president and chairman of the board of directors, Timothy Graham, said. “The board of PMI believes Blackstone is an ideal partner for the company as PMI pursues an investment strategy that will create significant shareholder value for all PMI shareholders.”
Blackstone Tactical Opportunities’ Naveen Bhatia said Blackstone is pleased to announce its investment in PMI.
“Blackstone is well positioned to help the company achieve its strategic objectives and maximize value for all shareholders,” Bhatia said. “We look forward to partnering with the PMI team.”
The PMI Group deal is the second deal for a Blackstone fund in the last few weeks.
In late August, funds managed by Blackstone announced the acquisition of a majority stake in Stearns Holdings, the parent company of Stearns Lending.
In a note to clients, Compass Point Research & Trading analysts Isaac Boltansky and Fred Small write that they believe that Blackstone’s investment in PMI will not have a material near or medium-term impact on private mortgage insurance market share dynamics due to the fact that PMI sold its operating platform to Arch Capital, but note that Blackstone’s play may be part of a larger move.
Boltansky and Small said that the PMI acquisition suggests that Blackstone “appears inclined to expand its exposure to a broader spectrum of the U.S. mortgage finance and housing value chain.”
According to Boltansky and Small, PMI Group has retained a significant net operating loss, which they suggest may be between as much as $2 billion, and write that that net operating loss likely served as a strategic consideration for Blackstone.
“Private mortgage insurance underwriting capacity is one of the toughest pieces of the mortgage finance value chain to acquire given state requirements and the Private Mortgage Insurance Eligibility Requirements,” Boltansky and Small write. “Although the PMI Group investment may not provide immediate underwriting capacity, any optionality toward securing that capacity may have strategic value to Blackstone.”
