(The following statement was released by the rating agency)
CHICAGO, July 08 (Fitch) Fitch Ratings has affirmed PHH
long-term Issuer Default Rating (IDR) and senior unsecured debt
rating at 'BB-'.
Fitch has also removed the ratings from Rating Watch Negative
and assigned a
Negative Rating Outlook. A detailed list of rating actions
follows at the end of
this press release.
Fitch previously downgraded PHH to 'BB-' on Rating Watch
Negative from 'BB' on
Rating Watch Evolving on June 4, 2014, following the announced
sale of PHH's
auto fleet leasing business. The downgrade reflected Fitch's
view that the
credit risk profile of the entity was at least one notch weaker
as a monoline
business focused on mortgage servicing/origination. The Rating
reflected uncertainty around the use of proceeds from the sale
of the fleet
KEY RATING DRIVERS - IDRS AND SENIOR DEBT
The affirmation of PHH's ratings and the removal of the Rating
follow the closing of the auto fleet leasing business sale and
announced capital allocation plan for its stand-alone mortgage
results in improved in capitalization, leverage and liquidity
primarily due to
$420m in identified debt pay downs using cash proceeds received
spin-off of PHH's auto fleet leasing business.
The Negative Outlook reflects uncertainty and execution risk
associated with the
planned re-investing in and re-engineering of the company's
and servicing business, in order to improve profitability,
particularly in light
of up to $450 million in announced share repurchases which will
The company has identified ambitious plans to improve its
and servicing business, including renegotiating existing private
servicing contracts with clients at more favorable economic
believes that there is significant uncertainty and execution
risk with this
strategy due to the inherently cyclical nature of the mortgage
business and the capital intensive nature and highly volatile
of the mortgage servicing business. Furthermore, the overall
remains subject to intensive regulatory and legislative
scrutiny, which could
potentially be a drain on cash resources.
Pro forma March 31, 2014 for the sale of PHH's fleet business,
mortgage business has equity of $1.87 billion and total debt of
resulting in leverage, as measured by debt to tangible equity,
of 1.01x, which
compares favorably to the company's year-end 2013 leverage of
expects leverage to moderately increase from its current pro
forma levels but
also expects that PHH will manage leverage conservatively.
Liquidity, as measured by balance sheet cash, is bolstered by
the $821 million
in net cash proceeds after payment of taxes and transaction
from the fleet business sale. The company has identified uses
which in addition to debt paydown and reinvestment in mortgage
share buybacks. Factoring in the planned debt paydowns, the
company does not
have any other unsecured debt maturities until 2017, when $250
convertible notes come due. Fitch views the company's liquidity
appropriate for the ratings.
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
Inability to renegotiate existing private label contracts at
economic terms, loss of clients, weakening in PHH's competitive
sustained operating losses would lead to negative rating
actions. In addition, a
sustained increase in leverage, reduction in liquidity due to
expected operational and contingency needs, or higher than
repurchases would also be viewed negatively.
Successful execution of management's strategic objectives as
strengthened competitive position, higher client contract
sustained increased in earnings and cash flows, while
capital and liquidity levels could result in the Outlook being
revised to Stable
from Negative. Even the expected time it will take to implement
strategic changes and observe meaningful change, Fitch expects
of the Negative Rating Outlook could be towards the outer end of
the 12 to 24
month Outlook horizon.
Fitch removes from Rating Watch Negative and affirms the
--Long-term IDR at 'BB-';
--Senior unsecured debt at 'BB-';
--Short-term IDR at 'B';
--Commercial paper at 'B'.
The Rating Outlook is Negative.
Fitch Ratings, Inc.
70 West Madison Street
Chicago, IL 60602
Mohak Rao, CFA
Media Relations: Brian Bertsch, New York, Tel: +1 212-908-0549,
Additional information is available at 'www.fitchratings.com'.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria' (Jan. 31,
--'Finance and Leasing Companies Criteria' (Dec. 11, 2012).
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
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