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Global Credit Research - 02 Sep 2010
Approximately $8 billion of rated debt securities affected
New York, September 02, 2010 -- Moody's Investors Service upgraded Realogy Corporation's (Realogy)
Corporate Family Rating to Caa2 from Caa3, affirmed the Caa3 Probability
of Default Rating, and changed the rating outlook to stable from
negative. Moody's concurrently upgraded the first lien credit
facility ratings to B1 from Caa1, the second lien term loan to Caa2
from Caa3 and the senior unsecured notes to Caa3 from Ca. The Ca
rating on the senior subordinated notes and the SGL-4 speculative
liquidity rating were affirmed.
Moody's upgraded the following ratings (LGD assessments revised):
$750 million senior secured revolving credit facility due 2013,
to B1 (LGD 1, 9%) from Caa1 (LGD 2, 22%)
$3.17 billion senior secured term loan due 2013, to
B1 (LGD 1, 9%) from Caa1 (LGD 2, 22%)
$507 million senior secured synthetic letter of credit facility,
to B1 (LGD 1, 9%) from Caa1 (LGD 2, 22%)
$650 million 2nd lien term loan due 2017, to Caa2 (LGD 3,
30%) from Caa3 (LGD 4, 56%)
$1.7 billion senior unsecured cash pay notes due 2014,
to Caa3 (LGD 4, 54%) from Ca (LGD 5, 77%)
$444 million senior unsecured toggle notes due 2014, to Caa3
(LGD 4, 54%) from Ca (LGD 5, 77%)
Corporate family rating, to Caa2 from Caa3
Moody's affirmed the following ratings (LGD assessments revised):
$875 million senior subordinated notes due 2015, to Ca (LGD
5, 81%) from Ca (LGD 6, 94%)
Probability of Default rating, Caa3
Speculative grade liquidity, SGL-4
"The upgrade of the Corporate Family Rating (CFR) to Caa2 from Caa3
anticipates a higher than average recovery rate for the debt capitalization
at default as a result of the company's improved profitability during
the first half of 2010 and our base case outlook for the company's
performance over the next two years," stated Lenny Ajzenman,
Senior Vice President.
The Caa2 CFR utilizes a mean family recovery rate for the debt capitalization
of 65% and is based on Moody's estimates of EBITDA levels
and market multiples at the time of a projected default. The upgrade
to the first lien credit facility, second lien term loan and senior
unsecured notes reflects the higher expected recovery rates for these
debt instruments given Moody's expectation for a higher than average
family recovery rate at default.
The Caa2 Corporate Family Rating and Caa3 Probability of Default Rating
reflect a high probability of a balance sheet restructuring over the near
to medium term. The company has very weak credit metrics,
with Debt to EBITDA (before Moody's standard adjustments) projected
at over 14 times for the 2010 calendar year. Moody's base
case forecast assumes a slow recovery in the residential housing market
during 2011 and 2012 while Realogy's first lien bank credit facility
matures in 2013. Consequently, we do not believe that profitability
growth over the next two years will be sufficient to avoid a balance sheet
restructuring. Furthermore, covenant compliance could be
challenging over the next four quarters given the expected profitability
decline in the back half of 2010 and a contractual tightening of the net
leverage covenant in the first quarter of 2011. The ratings are
supported by the company's leading market positions, strong brands
and the recent reduction in Realogy's contingent liability exposure.
The stable outlook anticipates a sharp decline in year over year profitability
levels in the back half of 2010 given our expectation for a 15%
to 20% decline in home sale transaction volumes during this period.
Realogy's results in the first half of 2010 benefited from higher
consumer confidence levels and home sale purchases stimulated by the home
buyers tax credit, which required a binding contract to purchase
a home by April 30, 2010. Our base case forecast anticipates
moderate profitability growth in 2011 driven by growth in home sale transactions
and flat average pricing.
The outlook could be changed to negative or the ratings downgraded if
(i) profitability erodes at a faster pace than expected during the back
half of 2010 due to a sharper than expected decline in residential home
sale sides or pricing or (ii) the housing market downturn continues into
2011 leading to further material decline in Realogy's profitability.
Given the company's weak credit metrics and significant debt maturities
in 2013, the ratings are unlikely to be upgraded until the company
meaningfully reduces leverage through a balance sheet restructuring.
The principal methodology used in rating Realogy was Global Business &
Consumer Service Industry rating methodology published in August of 2007.
Other methodologies and factors that may have been considered in the process
of rating this issuer can also be found on Moody's website.
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 $4.3 billion in the twelve months ended
June 30, 2010.
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's information, confidential and proprietary Moody's
Moody's Investors Service considers the quality of information available
on the issuer or obligation satisfactory for the purposes of assigning
a credit rating.
Moody's Investors Service adopts all necessary measures so that the information
it uses in assigning a credit rating is of sufficient quality and from
reliable sources; however, Moody's Investors Service does not
and cannot in every instance independently verify, audit 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.
Lenny J. Ajzenman
Senior Vice President
Corporate Finance Group
Moody's Investors Service
MD - Corporate Finance
Corporate Finance Group
Moody's Investors Service
Moody's Investors Service
Moody's raises Realogy's CFR to Caa2; outlook stable
250 Greenwich Street
New York, NY 10007
No Related Data.
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