Faced with a big need to raise capital in order to keep its business going, MGIC Investment Corp., perhaps the nation’s biggest private mortgage insurer, took an unusual cost-cutting step on Tuesday: dismantling what had been its $300 million borrowing facility.
On June 16, the struggling company notified the lenders under its bank revolving credit facility that it’s ending all of the banks’ commitments. By doing so, MGIC effectively terminated the credit facility-as will as the insurer’s obligation to pay a facility fee of about $0.5 million a quarter, according to an 8-K filing the company issued today. There are no defaults under the credit facility.
On June 9, the company, which sells insurance to mortgage banks, notified lenders that it would repay the entire $200 million outstanding under the credit facility on June 12. Based on current LIBOR rates, it said, the quarterly interest cost of the $200 million would be about $2 million. The $300 million credit facility was slated to mature on March 31, 2010. A company official could not be reached at presstime.
In MGIC’s April 29 first quarter earnings release, Curt Culver, the company’s chairman and chief executive officer, said that although he believes it has more than enough resources to pay all of its outstanding claims, executives were looking at ways to raise capital to write new insurance business.
That could come from claims-paying resources not needed to cover not needed to pay for existing insurance obligations; buying reinsurance; or through the sale of equity or debt, according to Culver. “While we have not pursued raising capital from private sources, we have been in discussions with both the U.S. Treasury and the Office of the Commissioner of Insurance of Wisconsin to explore capital options,” he said then.
Taking into account the planned repayment of the $200 million, the company had a total of about $151 million in short-term investments, which amounted to virtually all of the Company’s liquid assets as of June 9. The company’s obligations on that day included about $162 million of senior notes scheduled to mature in September 2011.