August 10, 2012 / 8:46 PM / 5 years ago

TEXT-Fitch expects to rate PHH notes 'BB'

Aug 10 - Fitch Ratings expects to assign a rating of 'BB' to PHH
Corporation's (PHH) $275 million 7.375% senior unsecured notes issuance
with expected maturity of 2019. Proceeds from the issuance, along with cash on
hand, will be used to repay approximately $418 million of 7.125% senior notes
due March 2013, by means of a tender offer.

Given that the proceeds will be used to repay outstanding debt via a tender
offer, Fitch does not envision there being a material impact on the company's
leverage levels as a result of the issuance.

PHH reported a net loss of $57 million for the three months ended June 30, 2012,
primarily due to $145 million negative fair value mark on its mortgage servicing
rights (MSR) portfolio and $36 million in foreclosure related expense related to
the representation and warranty claims from GSEs. The loss is within Fitch's
expectations. On an adjusted basis, which excludes the non-cash negative fair
value charge, net income was $27 million, driven by strong margins on new
mortgage originations and increased profitability in the fleet leasing segment.

PHH reported $700 million in unrestricted cash as of June 30, 2012, which
together with the proposed senior notes issuance offers considerable cushion to
pay off the upcoming $418 million in debt. Consequently, Fitch views the
near-term debt refinancing risk as manageable but believes that higher liquidity
levels are appropriate in light of potential mortgage repurchase related
expenses and the $250 million of convertible notes due in April 2014.

RATING DRIVERS AND SENSITIVITIES

PHH's ratings remain on Negative Outlook reflecting expected pressure on
operating performance in 2012 from contemplated liquidity actions, reduced loan
origination in the correspondent channel and its impact on the natural hedge
ratio, MSR-related volatility inherent in the company's business model, and
potential increase in losses from loan repurchases.

Ratings could be lowered if losses from loan repurchases significantly exceed
operating cash flows and other liquidity sources; mortgage origination decline
causes the company's natural hedge ratio to materially worsen; or the company is
unable to maintain adequate covenant cushion under its debt agreements,
including the bank revolving credit facility. Conversely, the Outlook could be
returned to Stable if the company executes on its liquidity plan without
materially sacrificing operating performance.

Fitch currently rates PHH as follows:

--Long-term IDR 'BB';
--Senior unsecured debt 'BB';
--Short-term IDR 'B';
--Commercial paper 'B'.

The Rating Outlook is Negative.

Additional information is available at 'www.fitchratings.com'. The ratings above
were solicited by, or on behalf of, the issuer, and therefore, Fitch has been
compensated for the provision of the ratings.

Applicable Criteria and Related Research:
--'Global Financial Institutions Criteria', Aug. 16, 2011;
--'Finance and Leasing Companies Criteria' Dec. 12, 2011.

Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria

Our Standards:The Thomson Reuters Trust Principles.
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