Philadelphia-based Radian Group Inc. and MGIC Investment Corp. have found their investments in Credit-Based Asset Servicing and Securitization LLC (C-BASS) in a state that’s materially impaired by risky changes in the subprime market. C-BASS principally operates as a company that invests in the credit risk of subprime residential mortgages. With the risk associated with subprime borrowers increasing rapidly, market changes have continued to put pressure on C-BASS and its investors.

In a press statement about the troubled transaction, MGIC said, “MGIC’s investment in C-BASS consists of approximately $466 million of equity as of June 30, 2007 and an additional $50 million drawn on July 20 and July 23, 2007, under a $50-million unsecured credit facility that MGIC provided to C-BASS. As of June 30, 2007 on a pro forma basis reflecting the amounts drawn under his credit facility, MGIC’s investment in C-BASS was approximately $516 million. MGIC has not determined the range of an impairment charge, although the upper boundary of the range could be MGIC’s entire investment, less any associated tax benefit.”
Company executives who commented on the announcement placed most of the blame on challenges in the subprime market. “While this action clearly reflects the continuing credit challenges in today’s mortgage market, we are moving forward, as planned, with our proposed merger with MGIC, which we expect to close late in the current quarter, or early in the next,” said S.A. Ibrahim, chief executive officer of C-BASS.
The situation evolved even more on Tuesday when Fitch Ratings placed 934 issues insured by Radian Asset Assurance, Inc. on negative ratings watch. The action followed a series of ratings changes that impacted Radian’s subsidiaries.