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