Sherman Management Pays $519 million for 37% of Firm

The management of debt purchasing firm Sherman Financial Corp. paid $518.8 million to buy part of the stakes of the company held by two large shareholders and take majority control of the company.

Sherman paid Radian Group LLC $278 million for common and preferred shares of Sherman representing about 21 percent of the company. Sherman paid MGIC Investment Corp. $240.8 million for common and preferred shares that represented about 16 percent of Sherman. 

Following the deal, Sherman management owns 54 percent of the company, MGIC owns 24.2 percent and Radian holds 21.8 percent, according to filings that MGIC and Radian made last week with the U.S. Securities and Exchange Commission. Before the deal MGIC and Radian each owned nearly 41 percent of Sherman.

The deal closed on Sept. 19, according to the filings.

Radian also announced that it entered a deal giving Sherman management the option to buy out Radian’s remaining Sherman holdings. The option runs one year from the Sept. 19 sale date.

MGIC and Radian are also each entitled to a contingent payment that is dependant on the after-tax return that exceeds 16 percent annually of the Class A common stock in the Sept. 19 deal. The contingent payment is due in 2013 or upon the sale of Sherman.

Charleston, S.C.-based Sherman generated revenues of $1.05 billion in 2006, according to MGIC’s 2006 annual report filing with the SEC.  Sherman contributed nearly $122 million to MGIC’s pretax income last year, Michael Zimmerman, MGIC’s vice president of investor relations, told insideARM.com earlier this month. 

MGIC, a Milwaukee-based mortgage insurer, announced in February it would pay about $5 billion to buy Radian, a provider of credit risk management based in Philadelphia. The deal came apart as the subprime mortgage market fell into disarray this year. The primary cause was the implosion of C-BASS, a joint venture of Radian and MGIC that invested in securities backed by subprime mortgage loans. 

MGIC reported in April that it and Radian planned to sell off some of their Sherman holdings.