PMI Looks to Raise Capital, Faces Liquidity Issues

Mortgage insurer PMI Group Inc. (PMI) said Thursday in a filing with the Securities and Exchange Commission that it was exploring alternatives to enhance liquidity and capital, as the U.S. mortgage insurance business continues to be a significant drag on the company’s assets. “Unless we raise capital to support PMI, its policyholders position will likely continue to decline and its risk-to-capital ratio will likely increase beyond levels necessary to meet regulatory capital adequacy requirements,” the company said in its regulatory filing. The insurer said it is looking at raising private capital, as well as considering potential options for government support under the U.S. Treasury’s Financial Stability Plan, which includes the Troubled Asset Relief Program. The company also said it was actively in discussions with creditors to amend terms to prevent its default. Shares initially surged Monday on the news, but later retrenched much of their earlier gains; PMI shares were up 6.43 percent in early trading Tuesday morning, when this story was published, at $0.48/share. The insurer said it had sufficient liquidity to repay $200 million outstanding under a revolving credit facility, but that it did not have sufficient liquidity to repay the facility and balances on its outstanding senior notes; an event of default involving the company’s credit facility, if not cured within 30 days, would trigger repayment obligations on PMI’s senior notes. “We’ll continue as an industry and as a company to look at various federal initiatives, a TARP type or TARP or TARP-like program, or looking at the public-private investment fund under the new initiatives that have been implemented by the administration,” said L. Stephen Smith, PMI’s CEO, in a conference call with analysts. “There are also a host of reinsurance-type proposals that we are looking at, either with private companies or potentially restructurings with the GSEs. So there are a number of initiatives that are in place that would come under the area of capital.” Earlier Monday, PMI reported a $181 million fourth quarter loss for 2008, compared with a third-quarter loss of $149.3 million. Read earlier coverage. Write to Paul Jackson at Disclosure: The author held no relevant investment positions when this story was published. Indirect holdings may exist via mutual fund investments. HW reporters and writers follow a strict disclosure policy, the first in the mortgage trade.

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