Mortgage insurer PMI Group Inc filed for Chapter 11 bankruptcy protection Wednesday, following the seizure last month of its main operating unit by Arizona insurance regulators.
PMI's filing came one day after Richard Gama, an Arizona Superior Court judge in Phoenix, rejected its request to overturn the seizure by the Arizona Department of Insurance.
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Arizona took over PMI Mortgage Insurance Co on Oct. 20, and directed that it pay claims at just 50 cents on the dollar.
The seizure came two months after the state told PMI to stop writing new policies because the company did not have enough capital.
A call to the office of Christina Urias, Arizona's director of insurance, was not immediately returned.
None of PMI's units is part of the Chapter 11 filing with the U.S. bankruptcy court in Wilmington, Delaware. In its bankruptcy petition, PMI said it had more than $225 million of assets and $736 million of debts as of Aug. 4.
PMI's bankruptcy reflects broad deterioration among mortgage insurers, many of which suffered big losses as the nation's housing downturn and weakened economy left the industry facing large claims on unpaid home loans.
Mortgage insurance is often required for purchasers of homes whose down payments are less than 20 percent.
"Continued high unemployment in the United States and the slow economic recovery (as compared to previous recoveries) in U.S. residential mortgage and housing markets are reflected in PMI's recent elevated loss ratios," PMI Chief Executive L. Stephen Smith said in a court filing.
Smith said bankruptcy is needed to maximize what creditors of the Walnut Creek, California-based company might recover.
JUDGE CALLS PMI UNIT "INSOLVENT"
PMI lost $412.1 million from continuing operations between January and June, a regulatory filing shows. It said it could not prepare its third-quarter financial report after Arizona locked employees out of their offices following the seizure.
In upholding the seizure, Gama said PMI Mortgage Insurance was "currently insolvent," and that Arizona showed that the unit was in "such an unsafe or unsound condition" that it would be unable to pay policyholders.
Gama also said the unit's loss projections have been off by at least 35 percent in each of the last three years, "creating substantial uncertainty" about the accuracy of its forecasts.
Earlier this month, rival Triad Guaranty Inc said it was also unlikely to meet its financial obligations.
PMI said its debts include $685 million of senior unsecured notes and $51.5 million of junior subordinated unsecured notes, all of which are now due and payable. It said the bankruptcy filing blocks noteholders from enforcing their remedies.
Shares of PMI last traded at 31 cents on Oct. 21, Reuters data show.
The bankruptcy case is In re: PMI Group Inc, U.S. Bankruptcy Court, District of Delaware, No. 11-13730. The Arizona case is Arizona v. PMI Mortgage Insurance Co et al, Arizona Superior Court, Maricopa County, No. 2011-018944. (Reporting by Ben Berkowitz and Jonathan Stempel in New York; Editing by Gerald E. McCormick and Tim Dobbyn)