กรุงเทพฯ--24 ก.พ.--Standard & Poor's
NEW YORK (Standard & Poor's) Feb. 23, 2015--Standard & Poor's Ratings Services said today it placed its 'B+' long-term issuer credit rating on Home Loan Servicing Solutions Ltd. (HLSS) on CreditWatch with negative implications. The CreditWatch placement follows the announcement that NRZ, an affiliate to Nationstar Mortgage LLC that is externally managed by a fund of Fortress Investment Group, will acquire all of the outstanding shares of HLSS for approximately $1.3 billion in cash.
The purchase price is about a 10% premium to the company’s stock price, roughly equal to the company’s $1.277 billion tangible book value as of Sept. 30, 2014. NRZ indicated on a public conference call that it will use assets on its balance sheet to pay the $1.3 billion purchase price--instead of raising new debt or equity, although it could of course raise either in the near future. As it stands now, pro forma leverage at the combined companies would rise materially compared with the current leverage the two companies reported individually at Sept. 30, 2014.
The companies combined will have about $16 billion in assets relative to NRZ’s $1.8 billion in equity. There is also uncertainty on how the combined company will manage its funding and liquidity. Currently, HLSS primarily relies on match-funded securitizations to finance its servicer advances, which make up about 75% of the company’s balance sheet. We believe match-funding assets and liabilities significantly reduce the likelihood of a liquidity event. A review of NRZ’s financial statements, however, show that the company uses a substantial amount of short-term repurchase agreements and note payables to fund its assets--a factor we believe hurts the firm’s funding and liquidity position. HLSS’ senior secured term loan contains a change-in-control provision requiring debt repayment under an acquisition. However, we are uncertain at this time whether NRZ will pay off the debt or seek some sort of refinancing.
We are not placing our rating on HLSS’ term loan on CreditWatch because we believe NRZ may have to pay off the debt as part of this transaction. "We would likely lower the rating on HLSS if we expect higher leverage at the combined company or a liquidity profile that relied on a substantial amount of short-term sources," said Standard & Poor's credit analyst Stephen Lynch. We will likely resolve the CreditWatch listing upon or before the close of the merger, after meeting with the company's management team to discuss its action plans for the capital structure and funding position of the combined company. If we take a negative rating action based on these discussions, we would likely lower the rating by only one notch, unless we assess liquidity as weak.