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Rating Action:

Moody's assigns B1 to proposed amended credit facility of Realogy; outlook positive

18 Jan 2011

Approximately $3.3 billion of newly rated debt securities affected

New York, January 18, 2011 -- Moody's Investors Service assigned a B1 to the proposed amended first lien credit facility of Realogy Corporation (Realogy). Moody's concurrently affirmed the Caa2 Corporate Family Rating and Caa3 Probability of Default Rating, upgraded the Speculative Grade Liquidity Rating to SGL-3 from SGL-4, and changed the rating outlook to positive from stable.

Realogy has proposed a three year extension of up to $608 million of the revolving credit facility, up to $2.5 billion of the term loan facility and its synthetic letter of credit facility. The proposed amendment and extension of Realogy's first lien credit facility is contingent upon (i) approval by a majority of credit facility lenders; (ii) the closing of a secured debt financing with no less than $700 million of gross proceeds; and (iii) the use of the proceeds from the secured debt financing to repay extended term debt. The refinancing also contemplates that $142 million of extended revolving credit facility loans will be automatically converted into extended term loans. The maximum extended credit facility balances listed above assume $700 million of secured debt financing and the conversion of $138 million of extended revolving credit facility loans into extended term loans. These amounts are subject to change. The upgrade of the SGL rating and the positive outlook are contingent upon the completion of the proposed refinancing.

The credit facility is also expected to be amended to, among other things, allow for the issuance of the proposed debt financing and carve out the proposed secured debt financing from the definition of secured debt. The proposed secured debt financing is expected to provide for liens on substantially all of the company's domestic assets (excluding accounts receivable pledged for the securitization facility) and 65% of the stock of foreign subsidiaries. The liens will be junior to the liens securing the first lien credit facility but senior to the liens securing the second lien term loans.

Moody's assigned the following ratings (LGD assessments):

Up to $608 million amended senior secured revolving credit facility due 2016, B1 (LGD 1, 7%)

Up to $2.5 billion senior secured term loan due 2016, B1 (LGD 1, 7%)

Senior secured synthetic letter of credit facility due 2016, B1 (LGD 1, 7%)

The following rating was upgraded:

Speculative grade liquidity, to SGL-3 from SGL-4

The following ratings were affirmed (LGD assessments revised):

Senior secured revolving credit facility due 2013, B1 (to LGD 1, 7% from LGD 2, 10%)

Senior secured term loan due 2013, B1 (to LGD 1, 7% from LGD 2, 10%)

Senior secured synthetic letter of credit facility due 2013, B1 (to LGD 1, 7% from LGD 2, 10%)

$650 million 2nd lien term loan due 2017, Caa2 (to LGD 3, 34% from LGD 3, 32%)

$492 million 11.5% senior unsecured notes due 2017, Caa3 (to LGD 3, 44% from LGD 3, 43%)

$130 million 12% senior unsecured notes due 2017, Caa3 (to LGD 3, 44% from LGD 3, 43%)

$64 million senior unsecured cash pay notes due 2014, Caa3 (to LGD 3, 44% from LGD 3, 43%)

$49 million senior unsecured toggle notes due 2014, Caa3 (to LGD 3, 44% from LGD 3, 43%)

$2.1 billion 11% senior subordinated convertible notes due 2018, Ca (to LGD 5, 70% from LGD 4, 69%)

$190 million senior subordinated notes due 2015, to Ca (LGD 5, 70% from LGD 4, 69%)

Corporate family Rating, Caa2

Probability of Default Rating, Caa3

For further details, refer to Moody's Credit Opinion for Realogy on Moodys.com.

RATINGS RATIONALE

The upgrade of the Speculative Grade Liquidity Rating to SGL-3 from SGL-4 reflects increased covenant headroom pro forma for the refinancing and increased balance sheet cash as a result of the $142 million in additional term loan borrowings. If the refinancing is completed, headroom under the net secured leverage covenant in the credit facility will increase as a result of the repayment of extended term debt with the proceeds from the proposed secured debt financing. The proposed amendment to the first lien credit facility excludes the proposed secured debt financing from the definition of secured debt. Pro forma for the refinancing, Moody's expects an adequate liquidity profile over the next four quarters with moderate projected covenant headroom and adequate availability under the revolving credit facility. Although the proposed refinancing improves the debt maturity profile, interest expense will increase by about $60 million and free cash flow from operations should be solidly negative over the next year.

The Caa2 Corporate Family Rating and Caa3 Probability of Default Rating reflects very high leverage, negative free cash flow and uncertainty regarding the timing and strength of a recovery of the residential housing market in the US. Moody's expects Debt to EBITDA (before Moody's standard adjustments) of about 14 times for the 2010 calendar year. Despite the recently completed and proposed improvements to the debt maturity profile, the Caa2 CFR continues to reflect Moody's view that current debt levels are unsustainable and that a substantial reduction in debt levels will be required to stabilize the capital structure. Assuming a recovery in the housing market over the next two years, the balance sheet could be restructured through a conversion of the $2.1 billion of subordinated debt into equity in conjunction with an equity offering. The ratings are supported by the company's leading market positions, strong brands, solid EBITDA margins and the potential for EBITDA growth upon a recovery in the housing market.

The positive outlook reflects the improved debt maturity profile pro forma for the refinancing and anticipates moderate Adjusted EBITDA growth in 2011. Profitability growth will be driven by modest improvement in the top line (weighted towards the back half of 2011) and the realization of cost reductions initiated in 2010.

The ratings could be upgraded if home sale volume or pricing rebounds solidly in 2011 or 2012 leading to strong growth in Adjusted EBITDA, improved credit metrics and liquidity. A balance sheet restructuring that meaningfully reduces leverage could also lead to an upgrade. The ratings or outlook could be pressured if the housing market downturn continues into 2011 leading to a material decline in Realogy's profitability and liquidity.

The principal methodologies used in this rating were Global Business & Consumer Service Industry published in October 2010, and Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009.

Realogy Corporation is a leading global provider of real estate and relocation services. Realogy is substantially owned and controlled by an affiliate of Apollo Management, L.P. (Apollo), and reported revenues of about $4.2 billion in the twelve months ended September 30, 2010.

REGULATORY DISCLOSURES

Information sources used to prepare the credit rating are the following: parties involved in the ratings, parties not involved in the ratings, public information, confidential and proprietary Moody's Investors Service information, and confidential and proprietary Moody's Analytics information.

Moody's Investors Service considers the quality of information available on the issuer or obligation satisfactory for the purposes of maintaining a credit rating.

Moody's adopts all necessary measures so that the information it uses in assigning a credit rating is of sufficient quality and from sources Moody's considers to be reliable including, when appropriate, independent third-party sources. However, Moody's is not an auditor and cannot in every instance independently verify or validate information received in the rating process.

Please see ratings tab on the issuer/entity page on Moodys.com for the last rating action and the rating history.

The date on which some Credit Ratings were first released goes back to a time before Moody's Investors Service's Credit Ratings were fully digitized and accurate data may not be available. Consequently, Moody's Investors Service provides a date that it believes is the most reliable and accurate based on the information that is available to it. Please see the ratings disclosure page on our website www.moodys.com for further information.

Please see the Credit Policy page on Moodys.com for the methodologies used in determining ratings, further information on the meaning of each rating category and the definition of default and recovery.

New York
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

New York
John Diaz
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's Investors Service
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Moody's assigns B1 to proposed amended credit facility of Realogy; outlook positive
No Related Data.
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