MGIC Investment Corp., the nation's largest mortgage insurer, said it would defer by 10 years an interest payment on $390 million worth of subordinated debentures, igniting a steep selloff in its stock during the morning of March 12.

Originally, MGIC was scheduled to make an interest payment on April 1. The convertible debentures carry a yield of 9%. In a new public filing MGIC said, "During this 10-year deferral period interest on the debentures will not be due and payable but will continue to accrue and compound semi-annually to the extent permitted by applicable law at an annual rate of 9%."

The payment delay was cited by Fitch Ratings, which promptly placed the ratings of the MI and its parent on its Rating Watch Negative list.

However, Fitch noted that MGIC's liquidity remains "adequate to meet intermediate term needs." It noted that the company has $394 million of cash which mitigates "the risk of breaching certain covenants on the company's $200 million bank line."

At midday on March 12, MGIC shares were trading down 37% to $0.78. Its 52-week high is $15.

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