Radian to miss filing after struggling to value CDO exposures

Mar.04, 2008 in Market Outlook

Radian to miss filing; shares drop 13%

Mortgage insurer struggles to estimate fair value of CDO exposures

By Alistair Barr, MarketWatch

Last Update: 1:58 PM ET Mar 4, 2008

SAN FRANCISCO (MarketWatch) — Radian Group shares fell 13% on Tuesday after the
insurer missed a regulatory filing because of trouble valuing its exposure to
complex securities known as collateralized debt obligations.

Radian (RDN) said late Monday that its annual 10-K filing with the Securities and
Exchange Commission will be late.

Like MBIA Inc. (MBI) and Ambac Financial (ABK), Radian’s bond insurance business
guaranteed CDOs using a type of derivative known as a credit default swap. As the
mortgage meltdown has spread into a global credit crisis, the market value of
these exposures has slumped. Very light or non-existent trading has also made
them difficult to value.

“This fair value estimate has been difficult to determine due to the need to
further evaluate the behavior of certain key assumptions, the limited recent
transaction activity, and a lack of observable market data for certain
transactions in this 2007 credit market place,” Radian explained.

Radian “expects to file its Form 10-K as soon as practicable following
satisfactory determination of such valuation,” the company added.

Radian also said it continued to suffer from material weakness in its internal
controls over financial reporting at the end of 2007.

“We did not maintain a sufficient complement of personnel with an appropriate
level of accounting knowledge, experience and training in the application of
generally accepted accounting principles commensurate with our financial
reporting requirements,” the company explained.

The weaknesses were most prevalent in how Radian monitored and valued its
derivatives exposures, the company added.

Radian shares fell 13% to $5.94 during afternoon trading on Tuesday.

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