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MGIC Investment Completes Pricing of $650M Senior Notes

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MGIC Investment Corporation (MTG - Free Report) has completed the pricing of $650 million aggregate principal amount of senior unsecured notes. The notes carry an interest rate of 5.250% and are scheduled to mature in Aug 15, 2028.

The senior notes will pay interest on a semi-annual basis on Feb 15 and Aug 15. The company has used part of the net proceeds from the sale of the notes to raise funds for a cash tender offer for any and all of the $425 million outstanding aggregate principal amount of its previously issued senior notes, which carries an interest rate of 5.750% and are scheduled to mature in 2023.

Another portion of the net proceeds has been deployed to purchase $38.6 million aggregate principal amount of its 9% Convertible Junior Subordinated Debentures, scheduled to mature in 2063.

The remaining portion will be added to the company’s funds for the use of general corporate purposes.

The company issued senior notes during a low interest rate environment to get hold of more funds and enhance financial flexibility without affecting its liquidity. As of Jun 30, 2020, MGIC Investment had $530 million liquidity.

The company’s debt levels have remained relatively stable in the past few years. As of Jun 30, 2020, the company’s long-term debt was $833 million, which remained almost flat with the 2019-end level. Debt to capital at the end of second quarter of 2020 improved 20 bps from 2019 level and compared favorably with the industry’s measure of 30.3%.  Nonetheless, the latest offering will increase the debt-to-capital ratio by 930 basis points.

Further, times interest earned of 13.6 compared favorably with the industry’s measure of 10.3. The firm’s times interest earned ratio has been improving over the years. The improvement in this ratio indicates that the firm will be able to meet current obligations in the near future without any difficulties. At a time when every entity is looking forward to preserve liquidity amid uncertainty as a result of the COVID-19 outbreak, an improving ratio is reassuring for investors.

By capitalizing on the low interest rate environment, the company is also attempting to reduce its interest burden, thus facilitating margin expansion. Also, the company’s operational strength should enable it to service debt uninterruptedly, thereby maintaining the stock’s creditworthiness.

Recently, CNA Financial Corporation (CNA - Free Report) offered 2.050% $500 million senior unsecured notes and 3.625% $500 million senior unsecured notes to capitalize on the low interest rate environment.

Shares of this Zacks Rank #3 (Hold) multi-line insurer have lost 27.5% in a year’s time compared with the industry’s decline of 12.1%. Nevertheless, increase in new insurance written, decline in claim payments and improvement in the housing market should drive shares going forward.

Stocks to Consider

Some better-ranked stocks in the multi-line insurance industry include Old Republic International Corporation (ORI - Free Report) and Assurant Inc. (AIZ - Free Report) , each carrying a Zacks Rank #2 (Buy).  You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Old Republic engages in the insurance underwriting and related services business primarily in the United States and Canada. It surpassed estimates in each of the last four quarters, with the average surprise being 36.72%.

Assurant provides lifestyle and housing solutions that support, protect, and connect consumer purchases in North America, Europe and the Asia Pacific. It surpassed estimates in three of the last four quarters, with the average surprise being 6%.

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