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Rating Action:

Moody's affirms Realogy's B2 CFR and other ratings, revises outlook to stable from negative

02 Dec 2020

Over $4.5 billion of rated debt affirmed

New York, December 02, 2020 -- Moody's Investors Service ("Moody's") affirmed Realogy Group LLC's ("Realogy") corporate family rating ("CFR") at B2, probability of default rating ("PDR") at B2-PD, senior secured bank credit facility at Ba3, senior secured 2nd lien notes at B3 and senior unsecured notes at Caa1. The Speculative Grade Liquidity ("SGL") rating was raised to SGL-2 from SGL-3. The outlook was revised to stable from negative.

RATINGS RATIONALE

"The rebound in existing home sales volume and mortgage refinance activity that buoyed Realogy's operating and financial results in late 2020 enables free cash flow and debt repayment in 2021, driving the revision of the outlook to stable from negative," said Edmond DeForest, Moody's Vice President and Senior Credit Officer. DeForest continued: "The upward revision of the liquidity rating to SGL-2 from SGL-3 is driven by the growth in free cash flow following the company's strong third quarter results."

The B2 CFR reflects Moody's expectations for a low single digit revenue growth rate, at least $200 million free cash flow and debt to EBITDA of 6.3 times as of September 30, 2020 to decline and remain below 6 times in 2021. Moody's anticipates strong recovery in the existing home sales market nationally, including the New York City suburbs, although not the city itself, fueled in part by historically low interest rates and renewed interest in existing homes from consumers since the coronavirus began to wane this summer is expected to continue in 2021. The substantial rebound in Realogy's operating and financial results depends in part on adverse coronavirus-related impacts continuing to wane in 2021. Moody's notes that strong tailwinds supporting Realogy's business in late 2020 could reverse quickly if coronavirus-related disruption forces real estate brokerages to cease operations again. Profitability rates may not recover from historically low EBITA margins around 7.5% in the 12 months ended September 30, 2020 in 2021 due to the return of around $120 million of expenses (largely compensation and investment) temporarily eliminated during the pandemic in 2020. Over the longer term, expected revenue growth, operating leverage in its owned brokerage unit and permanent cost reduction initiatives should help EBITA rates rebound toward their historical range between 10% and 13%.

All financial metrics cited reflect Moody's standard adjustments.

Additional support is provided by a strong portfolio of brands and leading existing homes sale brokerage market position. Realogy's owned brokerage operations are concentrated in the largest US markets, including most large suburban markets experiencing an existing home sale market boom, but also in New York City, where Realogy has a large, multi-brand owned brokerage presence and existing home sales conditions are not as robust as elsewhere in the country. Moody's considers the residential real estate brokerage market volatile, cyclical and seasonal. Although commission costs are variable, Realogy's owned brokerages have a high degree of fixed operating costs. A high proportion of its profits reflect home sale market activity as opposed to less-transactional franchise fees. Realogy's leading position in the residential real estate brokerage market positions the company well to improve financial metrics steadily if existing home sale volume and price growth is sustained.

Moody's expects that the residential real estate brokerage industry will remain subject to severe financial and operating consequences if coronavirus impacts rise further. Realogy is also under competitive pressure from other traditional brokers that have sought to recruit Realogy's best-performing sales people. Competition from non-traditional technology-enabled competitors including RedFin and Zillow, own-to-rent buyers and home flippers has grown. Additionally, Realogy's high operating and financial leverage could limit its flexibility if the negative impacts of the pandemic on the existing home sale market linger for an extended period. Moody's regards the coronavirus outbreak as a social risk under its ESG framework, given the substantial implications for public health and safety.

As a public company, Realogy provides transparency into its governance and financial results and goals. The 10 person board of directors is controlled by independent directors. Moody's expects Realogy to maintain conservative financial strategies including building liquidity and eschewing large debt-funded M&A or any share repurchase activity until its financial leverage is reduced. Additionally, Realogy does not exhibit material environmental risks.

The Ba3 rating on the senior secured obligations reflects their priority position in the capital structure and a Loss Given Default ("LGD") assessment of LGD2. The debt is secured by a pledge of substantially all of the company's domestic assets (other than excluded entities and excluding accounts receivable pledged for the securitization facility) and 65% of the stock of foreign subsidiaries. The Ba3 rating, two notches above the CFR, benefits from loss absorption provided by the junior ranking debt and non-debt obligations.

The B3 rating assigned to the senior secured second lien notes reflects their subordination to the existing 1st lien senior secured bank facilities, seniority to the senior unsecured notes, and a LGD assessment of LGD5. The second lien note will is secured by a second lien on substantially all of the company's domestic assets (other than excluded entities and excluding accounts receivable pledged for the securitization facility) and 65% of the stock of foreign subsidiaries.

The Caa1 rating on the senior unsecured notes reflects the B2-PD PDR and an LGD assessment of LGD5. The LGD assessment reflects effective subordination to all the secured debt. The senior notes are guaranteed by substantially all of the domestic subsidiaries of the company (excluding the securitization subsidiaries).

The SGL-2 liquidity rating reflects Realogy's good liquidity profile. As of September 30, 2020, Realogy had a cash balance of $380 million. Moody's anticipates at least $200 million of free cash in 2021. Over $1.2 billion of loans were available under the $1.425 billion revolver as of September 30, 2020; Moody's anticipates full revolver availability in 2021. Realogy's cash flow is seasonal, with negative cash flow typically in the 1st fiscal quarter. Moody's expects good headroom under the maximum senior secured net debt to EBITDA (as defined in the facility agreement) financial maintenance covenant applicable to the secured first lien debt over the next year. Realogy has $62 million of required debt principal payments in 2021. The revolver and $982 million of loans and notes are due in 2023.

The stable outlook reflects Moody's expectations for debt to EBITDA below 6 times, good liquidity and creditor-friendly financial strategies emphasizing repayment of debt. The stable outlook also anticipates Realogy will repay or refinance its 2023 debt maturities well in advance of their due dates.

FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGS

The ratings could be upgraded if Moody's expects Realogy will sustain: 1) debt to EBITDA below 5.5 times, 2) free cash flow to debt of at least 5%, 3) good liquidity and 4) balanced financial strategies, including an emphasis upon repaying debt and extending its debt maturity profile.

The ratings could be downgraded if Moody's anticipates: 1) debt to EBITDA will remain above 6.5 times, 2) diminished liquidity or 3) aggressive financial strategies featuring large, debt-financed acquisitions or shareholder returns.

The principal methodology used in these ratings was Business and Consumer Service Industry published in October 2016 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1037985. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

..Issuer: Realogy Group LLC

.... Corporate Family Rating, Affirmed B2

.... Probability of Default Rating, Affirmed B2-PD

....Senior Secured Bank Credit Facilities, Affirmed Ba3 (LGD2)

....Senior Secured 2nd lien Regular Bond/Debenture, Affirmed B3 (to LGD5 from LGD4)

....Senior Unsecured Regular Bond/Debenture, Affirmed Caa1 (LGD5)

.... Speculative Grade Liquidity Rating, Upgraded to SGL-2 from SGL-3

....Outlook, Changed To Stable From Negative

Realogy is a global provider of real estate and relocation services. The company operates in four segments: franchise, brokerage, title and leads. The franchise brand portfolio includes Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA, Sotheby's International Realty and Better Homes and Gardens Real Estate.

On August 8, 2020, Realogy entered into a confidential settlement agreement with SIRVA, Inc., SIRVA Worldwide, Inc. ("SIRVA Worldwide") and affiliates of Madison Dearborn Partners, LLC to mutually dismiss and release all claims related to the termination of the Purchase and Sale Agreement dated November 6, 2019 with North American Van Lines, Inc. (as assignee of SIRVA Worldwide) for the sale of Realogy's employee relocation services business, Cartus Corporation, for approximately $400 million plus assumed debt. Cartus Corporation remains classified as a discontinued operation that Moody's expects Realogy will sell to SIRVA Worldwide or another buyer.

Moody's expects 2021 revenues of over $6 billion.

REGULATORY DISCLOSURES

For further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.

For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure

These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1133569.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Edmond DeForest
VP - Senior Credit Officer
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Karen Nickerson
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

Releasing Office:
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 1 212 553 0376
Client Service: 1 212 553 1653

No Related Data.
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