Minority Owner Sells Stake in Sherman Financial for $209 Million

Debt purchasing giant Sherman Financial Thursday repurchased a 24.2 percent stake in its company from mortgage insurer MGIC for $209.5 million.

MGIC Investment Corp. (NYSE: MTG) said in a filing with the Securities and Exchange Commission that Sherman will pay for the stake with $124.5 million in cash and an $85 million promissory note. The actual purchase price was $227.5 million, but a $21.7 million adjustment was made for distributions from Sherman to MGIC since March 31, 2008, according to the SEC filing.

After the deal, Sherman’s management will control 78.2 percent of Sherman, with MGIC’s fellow mortgage insurer Radian Group Inc. owning the remaining 21.8 percent. In its earnings release Monday, Radian pointed out that it still has the option to sell its stake in Sherman when commenting on its liquidity position.

Until last year, MGIC and Radian jointly controlled more than 80 percent of Sherman Financial, an accounts receivable management firm with more than $1 billion in revenue in 2006, according to MGIC’s annual report for that year. Radian reported in its earnings for the second quarter that Sherman had revenues of $296 million in the second quarter alone.

But Sherman’s management purchased a joint 37 percent stake from the two mortgage insurers – 21 percent from Radian and 16 percent from MGIC – in September 2007 giving Sherman a controlling stage in its company (“Sherman Management Pays $519 million for 37% of Firm,” Sept. 24, 2007).

The price paid Thursday for the 24.2 percent stake is far below the $519 million Sherman paid for 37 percent of the firm last year. But the purchase price for the transaction Thursday may increase if certain conditions are met.