Triad Guaranty has entered into an exclusive arrangement with Lightyear Capital, a private equity firm focused on financial services, to negotiate definitive agreements that would result in the creation of a new monoline mortgage insurance company.

Triad Guaranty said that it currently expects to complete negotiations and execute the definitive agreements in four to six weeks. Execution of the agreements is subject to a number of conditions, including the approval of Lightyear’s investment committee and Triad Guaranty’s board of directors.

The transaction is expected to close in the third quarter of 2008 and be subject to customary closing conditions, including receipt of all necessary approvals.

It is currently expected that Lightyear and its investor group would provide up to $400 million in the new Illinois-based private mortgage insurance company with Lightyear expected to commit up to $200 million of this amount.

Mark Tonnesen, president and CEO of Triad Guaranty, said: We believe the transactions that we are now negotiating with Lightyear offer the best outcome for our customers, policyholders, stockholders and employees given the current industry conditions and capital-raising environment.

If completed, we believe these transactions would create a well-capitalized new mortgage insurer.