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Rating Action:

Moody's assigns B2 rating to PHH Mortgage's secured debt issuance; outlook revised to stable from negative

24 Feb 2021

New York, February 24, 2021 -- Moody's Investors Service, ("Moody's") has assigned a B2 rating to PHH Mortgage Corporation's (PMC) planned $400 million 5-year first-lien senior secured debt issuance. In the same rating action, Moody's affirmed the company's Caa1 corporate family rating and revised the outlook to stable from negative.

Moody's also affirmed the ratings of PMC's outstanding $185 million term loan and Ocwen Loan Servicing's (OLS) second-lien senior secured debt totaling $292 million. The proceeds from the issuance will be used to redeem these debts. After redemption of the senior secured term loan, the planned senior secured debt will have first-lien priority in PMC's funding structure.

PMC is a wholly-owned operating subsidiary of Ocwen Financial Corporation, (Ocwen), which in the second quarter of 2019 merged OLS into PMC, with PMC being the surviving entity.

Assignments:

..Issuer: PHH Mortgage Corporation

....Senior Secured Regular Bond/Debenture, Assigned B2

Affirmations:

..Issuer: PHH Mortgage Corporation

....LT Corporate Family Rating, Affirmed Caa1

....Senior Secured Bank Credit Facility, Affirmed B2

..Issuer: Ocwen Loan Servicing, LLC

....Senior Secured Regular Bond/Debenture, Affirmed Caa2

Outlook Actions:

..Issuer: PHH Mortgage Corporation

....Outlook, Revised To Stable From Negative

RATINGS RATIONALE

The B2 rating assigned to PMC's senior secured notes is based on PMC's Caa1 corporate family rating and the application of Moody's Loss Given Default (LGD) for Speculative-Grade Companies methodology and model, which incorporate their priority of claim and strength of asset coverage.

The revision of the outlook to stable from negative reflects the benefit to PMC's caa1 standalone assessment of the refinancing of its corporate debt, which extends the maturity of that debt and reduces refinancing risks, providing the firm with the runway to accomplish its strategic plan to improve profitability. It also reflects the investment from Oaktree Capital (Oaktree) in the form of $285 million in secured notes into Ocwen, which will be subordinated to the new first-lien debt, and the announcement of Ocwen's mortgage servicing rights (MSR) joint venture with Oaktree, both of which should help the firm grow its businesses and establish a more stable earnings profile.

PMC's Caa1 corporate family rating reflects the firm's weak capital levels. Ocwen's weak capitalization is partly due to the inclusion of securitized Home Equity Conversion Mortgages (HECMs) and related liabilities on its balance sheet, as per GAAP accounting standards. While the company does not own the underlying assets of the securitizations, as a servicer it is required to repurchase the FHA-insured HECM mortgages from the Ginnie Mae pools under certain circumstances. Moody's views the credit risk of securitized HECM loans to be modest due to the FHA insurance, which carries the full faith and credit of the US government.

The ratings also reflect recent regulatory developments, including the resolution of a regulatory matter in Florida in October 2020, and the risks with respect to yet-unresolved matter regarding the lawsuit filed in 2017 by the Consumer Financial Protection Bureau (CFPB) regarding certain legacy servicing activities. The court-ordered mediation concluded in January 2021 with the parties unable to reach a settlement. As a result, Ocwen increased its legal and regulatory accrual related to the CFPB matter by $13.1 million in the fourth quarter of 2020.

The stable outlook reflects Moody's expectation that Ocwen will maintain stable financial metrics in the next 12-18 months with respect to capitalization and liquidity, and will continue to make progress with respect to its strategic plan to improve profitability.

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

The ratings could be upgraded if the firm's financial performance improves, as measured by a ratio of net income to average managed assets consistently above 0.5%.

The ratings could be downgraded if the firm is unable to sustainably maintain at minimum breakeven profitability capitalization weakens, as measured by TCE/TMA below 3.0% or in the event that regulatory action or litigation materially restricts the company's business activities, or harms its franchise and reputation, or if the company is subject to additional regulatory or legal action resulting in material fines or judgments.

The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

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_1243406.

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.

The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK 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.

Gene Berman
Asst Vice President - Analyst
Financial Institutions 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

Ana Arsov
MD - Financial Institutions
Financial Institutions 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.
© 2022 Moody’s Corporation, Moody’s Investors Service, Inc., Moody’s Analytics, Inc. and/or their licensors and affiliates (collectively, “MOODY’S”). All rights reserved.

CREDIT RATINGS ISSUED BY MOODY'S CREDIT RATINGS AFFILIATES ARE THEIR CURRENT OPINIONS OF THE RELATIVE FUTURE CREDIT RISK OF ENTITIES, CREDIT COMMITMENTS, OR DEBT OR DEBT-LIKE SECURITIES, AND MATERIALS, PRODUCTS, SERVICES AND INFORMATION PUBLISHED BY MOODY’S (COLLECTIVELY, “PUBLICATIONS”) MAY INCLUDE SUCH CURRENT OPINIONS. MOODY’S DEFINES CREDIT RISK AS THE RISK THAT AN ENTITY MAY NOT MEET ITS CONTRACTUAL FINANCIAL OBLIGATIONS AS THEY COME DUE AND ANY ESTIMATED FINANCIAL LOSS IN THE EVENT OF DEFAULT OR IMPAIRMENT. SEE APPLICABLE MOODY’S RATING SYMBOLS AND DEFINITIONS PUBLICATION FOR INFORMATION ON THE TYPES OF CONTRACTUAL FINANCIAL OBLIGATIONS ADDRESSED BY MOODY’S CREDIT RATINGS. CREDIT RATINGS DO NOT ADDRESS ANY OTHER RISK, INCLUDING BUT NOT LIMITED TO: LIQUIDITY RISK, MARKET VALUE RISK, OR PRICE VOLATILITY. CREDIT RATINGS, NON-CREDIT ASSESSMENTS (“ASSESSMENTS”), AND OTHER OPINIONS INCLUDED IN MOODY’S PUBLICATIONS ARE NOT STATEMENTS OF CURRENT OR HISTORICAL FACT. MOODY’S PUBLICATIONS MAY ALSO INCLUDE QUANTITATIVE MODEL-BASED ESTIMATES OF CREDIT RISK AND RELATED OPINIONS OR COMMENTARY PUBLISHED BY MOODY’S ANALYTICS, INC. AND/OR ITS AFFILIATES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT CONSTITUTE OR PROVIDE INVESTMENT OR FINANCIAL ADVICE, AND MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS ARE NOT AND DO NOT PROVIDE RECOMMENDATIONS TO PURCHASE, SELL, OR HOLD PARTICULAR SECURITIES. MOODY’S CREDIT RATINGS, ASSESSMENTS, OTHER OPINIONS AND PUBLICATIONS DO NOT COMMENT ON THE SUITABILITY OF AN INVESTMENT FOR ANY PARTICULAR INVESTOR. MOODY’S ISSUES ITS CREDIT RATINGS, ASSESSMENTS AND OTHER OPINIONS AND PUBLISHES ITS PUBLICATIONS WITH THE EXPECTATION AND UNDERSTANDING THAT EACH INVESTOR WILL, WITH DUE CARE, MAKE ITS OWN STUDY AND EVALUATION OF EACH SECURITY THAT IS UNDER CONSIDERATION FOR PURCHASE, HOLDING, OR SALE.

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MJKK or MSFJ (as applicable) hereby disclose that most issuers of debt securities (including corporate and municipal bonds, debentures, notes and commercial paper) and preferred stock rated by MJKK or MSFJ (as applicable) have, prior to assignment of any credit rating, agreed to pay to MJKK or MSFJ (as applicable) for credit ratings opinions and services rendered by it fees ranging from JPY100,000 to approximately JPY550,000,000.

MJKK and MSFJ also maintain policies and procedures to address Japanese regulatory requirements.

​
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