Sherman Financial Buys Remaining Stake in Itself for $172 million

Sherman Financial Group, one of the largest debt buyers in the world, has bought back the last remaining outstanding stake in the company from mortgage insurer Radian Group, according to an announcement Tuesday from Radian.

In its first quarter earnings release, Philadelphia-based Radian (NYSE: RDN) said that it is divesting its entire stake in Sherman for $172 million in cash in an agreement reached on Monday. Radian had received a dividend payment of $28 million from Sherman in April. Radian, which also announced an offering of its own stock, has been trying to raise capital as the fallout from the mortgage collapse continues. The company said the transaction would result in a pre-tax gain of around $70 million.

According to a filing with the SEC, Sherman and its management team will own all of the outstanding shares in the ARM firm after the transaction is complete. According to previous filings, Radian’s remaining stake in Sherman was around 29 percent.

The transaction is seemingly the last in a series of deals that saw Sherman and its management team steadily regain ownership of the company from Radian and its mortgage insurance peer MGIC Investment Corp.

At one point, Radian and MGIC owned an 83 percent stake in Sherman. In 2005, Sherman’s management team began acquiring equal pieces of the stake controlled by the mortgage insurers. In 2008, under stress from the collapse of the mortgage market, MGIC sold all of its remaining stake in Sherman to management (“Minority Owner Sells Stake in Sherman Financial for $209 Million,” Aug. 15, 2008). The following month, Radian increased its stake in Sherman from around 22 percent to 29 percent (“Radian Increases Stake in Debt Buyer Sherman Financial,” Sept. 19, 2008).

But the need for capital prompted Radian to sell its remaining stake Monday. A joint venture in the mortgage market between MGIC and Radian failed in 2008, causing both massive losses.

Sherman Financial is one of the largest ARM companies in the world, with total revenues in 2009 of $1.25 billion – down from $1.5 billion – according to a filing by Radian. The company buys and collects charged-off consumer credit card and bankrupt accounts and also issues credit through its CreditOne unit.