IPO Preview: NMI Holdings

Nov. 7.13 | About: NMI Holdings, (NMIH)

Based in Emeryville, CA, NMI Holdings (NASDAQ:NMIH) scheduled a $25 million IPO on Nasdaq with a market capitalization of $693 million at a price range midpoint of $12 for Friday, November 8, 2013.

Thirteen operating company IPOs are scheduled for this week. The full IPO calendar can be found at IPOpremium.

S-1 filed November 1, 2013.

Manager, Joint managers: FBR Capital Markets

Co-Managers: None

Summary

NMIH is a development stage company (no reported revenues) that raised $510 million pre-IPO to fund a private mortgage insurance business in the United States.

Valuation

Valuation Ratios

Mrkt

Price /

Price /

Price /

Price /

% offered

annualizing June 6 mos

Cap (MM)

Sls

Erngs

BkVlue

TanBV

in IPO

NMI Holdings (NMIH)

$692

n/a

-13.2

1.4

1.5

4%

Compare price-to-book ratios

NMI Holdings (NMIH)

$692

1.4

Essent Group (NYSE:ESNT)

$1,921

3.1

Radian Group (NYSE:RDN)

$2,450

2.7

MGIC Investment (NYSE:MTG)

$2,750

4.0

Click to enlarge

Notice that established private mortgage insurance companies sell at much higher price-to-book values than NMIH.

Glossary

Conclusion

  • Because established private mortgage insurance companies sell at much higher price-to-book values, the rating on NMIH is neutral to hold (at the price range mid-point) for perhaps three months, not expecting much of a pop in the first few weeks to give the investment banker a chance to sell the story to investors of a startup (development stage) private mortgage insurer, with significant institutional shareholders.

To put the conclusions and observations in context, the following is reorganized, edited and summarized from the full S-1 referenced above:

Business

NMIH is a Delaware corporation that through its subsidiaries provides private mortgage insurance ("MI") in the United States.

In April 2012, NMIH raised net proceeds of $510 million from a private placement of its common stock and purchased MAC Financial Holding Corporation, a Delaware corporation and its Wisconsin licensed insurance subsidiaries, which have been renamed National Mortgage Insurance Corporation ("National MI"), National Mortgage Reinsurance Inc. One ("NMRI One") and National Mortgage Reinsurance Inc. Two ("NMRI Two").

The proceeds from the private placement were and will be primarily used to capitalize NMIH's MI subsidiaries and fund its operating expenses until its MI subsidiaries generate positive cash flows.

In January 2013, the Federal National Mortgage Association, commonly known as Fannie Mae, and the Federal Home Loan Mortgage Corporation, commonly known as Freddie Mac, approved NMIC as a qualified mortgage insurance provider ("GSE Approval").

NMIH refers to Fannie Mae and Freddie Mac collectively as the "GSEs," Government Sponsored Enterprises. With GSE Approval, NMIH's customers who originate loans insured by NMIC may sell such loans to the GSEs (as of April 1, 2013, for Freddie Mac and as of June 1, 2013, for Fannie Mae).

NMIH's primary insurance subsidiary, NMIC, requires a certificate of authority, or insurance license, in each state or jurisdiction where NMIH issues insurance policies. NMIC first applied for a certificate of authority in each of the 50 states and the District of Columbia ("D.C.") in June 2012.

NMIC is currently licensed in 48 states and D.C. and commenced, on a limited test basis, writing insurance business on April 1, 2013.

As of September 30, 2013, NMIC has insured under NMIH's primary mortgage insurance policy 22 loans with an aggregate unpaid principal balance of $4.6 million, representing insurance risk-in-force of approximately $1.2 million.

With respect to each policy, primary Risk-In-Force ("RIF") is the product of an insured loan's coverage percentage (the level of insurance protection) specified in the policy multiplied by that loan's unpaid principal balance.

Effective September 1, 2013, NMIC also insures under a pool mortgage insurance policy 22,000 loans with an aggregate unpaid principal balance of $5.2 billion, with net RIF of $93.1 million (as of such date), which represents the amount between a deductible payable by Fannie Mae on initial losses and a stop loss, above which, losses are borne by Fannie Mae.

Dividend policy

No dividends

Competition

5% stockholders

Claren Road Asset Management LLC 12.6%

Hayman Capital Management, LP 9.9%

Blue Mountain Capital Management LLC 9.8%

Perry Corporation Investment Manager 7.2%

CI Investments Inc. 6.5%

Amici Capital LLC 5.1%

Use of proceeds

NMIH expects to net $22.8 million from its IPO. Proceeds are allocated for working capital and other general corporate purposes.

Disclaimer: This NMIH IPO report is based on a reading and analysis of NMIH's S-1 filing, which can be found here, and a separate, independent analysis by IPOdesktop.com. There are no unattributed direct quotes in this article.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.