PMI Bankruptcy Follows Denied Motion

Barely a month after its primary operating subsidiary was seized, The PMI Group Inc. has filed for bankruptcy.

The Arizona Department of Insurance ordered PMI Mortgage Insurance Co. to stop writing new mortgage insurance policies in August. Two months later, the regulator obtained an “order directing full and exclusive possession and control of insurer.”

The regulator took possession of PMI and implemented a partial payment plan on Oct. 24 calling for claim payments to be made at 50 percent.

In an effort to gain back control of the subsidiary, PMI Group filed a motion to vacate the state’s interim order on Oct. 28 in Maricopa County Superior Court. PMI claimed that the unit still had $2 billion in cash and liquid investments — enough to keep paying policyholder claims until 2014 — and that the state moved to quickly to take control of the unit.

But on Tuesday, the superior court denied the motion.

On Wednesday, The PMI Group Inc. filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code in U.S. Bankruptcy Court for the District of Delaware, according to a filing with the Securities and Exchange Commission. The filing excluded PMI subsidiaries.

“The company intends to use the protections of the bankruptcy code to assess its strategic and other options for preserving stakeholder value in light of the actions taken by the ADI director,” the filing stated.

As a result of the bankruptcy filing, $685 million in senior unsecured notes and around $52 million in junior subordinated unsecured notes have become due and payable — though the noteholders’ ability to seek remedies and enforce their rights under the indentures applicable to the notes has been stayed as a result of the bankruptcy.

The state is seeking to appoint a receiver for the subsidiaries, and a hearing is scheduled for Jan. 10, 2012.