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Evercore Partners Inc. has been hired by PMI Group Inc. to help explore a possible restricting of the company after its main unit was seized by regulators one week ago. The law firms of Sullivan & Cromwell LLP and Young Conaway Stargatt & Taylor LLP have also been retained by PMI according to a regulatory filing from the Walnut Creek, California-based insurer. The insurer has posted 16 consecutive quarterly losses.
After mortgage defaults drained capital, the Arizona insurance watchdog took over the unit and told the unit to pay claims at 50 cents on the dollar. The unit has already been prohibited from selling new coverage policies. PMI also said that because of the event of default, all principal payments are due immediately on debt, including the 4.5 percent notes that are due in 2020. According to the filing, the law firms were hired to “explore strategic and restructuring alternatives in consultation with PMI’s stakeholders.”
Roger Altman, former deputy United States Treasury secretary, founded Evercore. He has also advised CIT Group Inc. when that company went through a restructuring that wiped out $2.3 billion in government bailout funds. Altman also advised the General Motors Corp. on its bankruptcy filing. The restructuring group is led by William Repko and David Ying, who also advised MGM Mirage when it filed for recapitalization.
Most of the burden can be tied to Fannie Mae and Freddie Mac, the two mortgage companies that were taken into government conservatorship back in 2008. Chris Gamaitoni, an analyst at Compass Point Research and Trading LLC, had the following to say:
“The 50 percent claims payment is a little bit more negative than we had thought.”
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The main beneficiaries of PMI’s mortgage insurance coverage over the past year were the two government-controlled mortgage companies. Accounting for more than 10 percent of PMI’s revenue in 2010 was Wells Fargo & Co.
Before trading was halted on the New York Stock Exchange on October 21, PMI declined 15 percent to 31 cents. The company’s shares have plummeted 91 percent in 2011 alone.
There was an outstanding debt of more than $700 million in principal amount as of June 30 for PMI according to the regulatory filings. PMI does not have the financial resources to pay the principal on 4.5 percent notes that will mature in 2020, the 6 percent securities that are due in 2016, and the 6.625 percent debentures that are due in 2036 according to the filing.
PMI is one of the worst hobbled mortgage insurers in the United States because of the housing crash, which was the worst in the country in seven decades. Another mortgage company, Triad Guaranty Inc., had to stop selling mortgage policies when its capital ran short back in 2008. The company was also ordered to defer 40 percent of claims payments by a state regulator because of uncertainty over whether it will meet its obligations.
