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Rating Action:

Moody's raises certain Realogy ratings: sr. uns. to Caa2; other ratings under review for upgrade

04 Oct 2012

Approximately $7.6 billion of rated debt affected

New York, October 04, 2012 -- Moody's Investors Service upgraded certain debt ratings of Realogy, Inc. ( "Realogy"), including the Corporate Family to Caa1, Probability of Default and senior unsecured to Caa2 and senior subordinated to Caa3. In a related action, Moody's placed the corporate family, probability of default and senior secured ratings under review for upgrade.

RATING RATIONALE

The rating upgrades incorporate Moody's view that Realogy is positioned to benefit as the number of residential home sales and the average price of each transaction in the U.S. are expected to continue to grow modestly through 2013. Following several years of focus on cost management, and five years since its revenue peak, Moody's expects Realogy will experience improvement in financial results as existing home sale volumes and prices improve. This is because Realogy has about a 25% share of the residential brokerage market as well as the inherent operating leverage in its business model. Based on forecasts published by the National Association of Realtors (NAR) and Fannie Mae, Moody's anticipates increasing sales and EBITDA for Realogy in 2012 (Moody's adjusted) to about $4.4 billion and $740 million to $750 million, respectively, and for 2013 sales growing by about 4% to 5% (to $4.6 billion) and with some margin expansion with EBITDA of at least $800 million.

"The improved operating results from better market conditions do not alleviate the need for capital structure changes at Realogy", noted Edmond DeForest, Moody's Senior Analyst. Specifically, annual interest expense of almost $700 million per year cannot be met from existing sources of liquidity, including internally generated cash flow, cash and existing bank credit lines. Consequently, the default risk remains elevated absent a significant reduction of debt in the capital structure, and is the reason the corporate family rating remains at Caa1.

The ratings review is driven by Realogy's proposed primary equity offering and the related conversion of subordinated debt at par which, if completed as contemplated by the company, should result in an improved capital structure. The proposed $1 billion of new equity through an Initial Public Offering (IPO)and $2 billion subordinated debt conversion would improve leverage and liquidity. Debt (Moody's adjusted) would drop by over $3 billion (to about $5.84 billion) and annual interest expense should decline by over half. The lower interest burden combined with the anticipated improvements in existing home sale market conditions should result in Realogy generating some modest free cash flow.

During the review, Moody's will assess the impact of the changes in Realogy's capital structure following the planned IPO of equity and the debt conversion, and the potential for debt reduction and cash flow increases with improving conditions in the residential real estate market. Following completion of the IPO and the subordinated debt conversion and, depending on the allocation of equity proceeds to debt reduction and the timing thereof, the corporate family, probability of default and certain senior secured ratings could be raised by one notch. The improved liquidity as the company could return to generating free cash flow, and with the pressure of near term debt maturities abated, could also result in an improved speculative grade liquidity rating. Ratings on the senior unsecured debt would not likely change, given the probable allocation to debt reduction.

The following ratings were upgraded and put under review for possible upgrade:

Corporate family Rating, to Caa1 from Caa2

Probability of Default Rating, to Caa2 from Caa3

The following ratings (LGD assessments) were upgraded:

11.5% senior unsecured notes due 2017, to Caa2 (LGD 3, 44%) from Caa3 (LGD 3, 44%)

12% senior unsecured notes due 2017, to Caa2 (LGD 3, 44%) from Caa3 (LGD 3, 44%)

10.5% senior unsecured cash pay notes due 2014, to Caa2 (LGD 3, 44%) from Caa3 (LGD 3, 44%)

11.00%/11.75% senior unsecured toggle notes due 2014, to Caa2 (LGD 3, 44%) from Caa3 (LGD 3, 44%)

11% senior subordinated convertible notes due 2018, to Caa3 ( LGD 5, 70%) from Ca (LGD 5, 70%)

12.375% senior subordinated notes due 2015, to Caa3 ( LGD 5, 70%) from Ca (LGD 5, 70%)

The following ratings (LGD assessments) were put under review for possible upgrade:

Senior secured revolving credit facility due 2016, B1 (LGD 1, 6%)

Senior secured term loan due 2016, B1 (LGD 1, 6%)

Senior secured synthetic letter of credit facility due 2013/2016, B1 (LGD 1, 6%)

Senior secured first lien notes due 2020, B1 (LGD 1, 6%)

Senior secured notes (one and half lien) due 2020, Caa1 (LGD 2, 22%)

Senior secured (one and half lien) notes due 2019, Caa1 (LGD 2, 22% from 24%)

Second lien term loan due 2017, Caa2 (LGD 3, 33%)

The following rating was affirmed:

Speculative grade liquidity, SGL-4

The principal methodology used in rating Realogy Corp was the Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

Realogy is a provider of real estate and relocation services. The company operates in four segments: real estate franchise services, company owned real estate brokerage services, relocation services and title and settlement services. The franchise brand portfolio includes Century 21, Coldwell Banker, Coldwell Banker Commercial, ERA, Sotheby's International Realty and Better Homes and Gardens Real Estate. Realogy is substantially owned and controlled by an affiliate of Apollo Management, L.P.

REGULATORY DISCLOSURES

The Global Scale Credit Ratings on this press release that are issued by one of Moody's affiliates outside the EU are endorsed by Moody's Investors Service Ltd., One Canada Square, Canary Wharf, London E 14 5FA, UK, 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 has issued a particular Credit Rating is available on www.moodys.com.

For ratings issued on a program, series or category/class of debt, this announcement provides relevant regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt 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 relevant regulatory disclosures in relation to the rating action on the support provider and in relation to each particular rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides relevant 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.

Information sources used to prepare the 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 considers the quality of information available on the rated entity, obligation or credit satisfactory for the purposes of issuing a rating.

Moody's adopts all necessary measures so that the information it uses in assigning a 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 the ratings disclosure page on www.moodys.com for general disclosure on potential conflicts of interests.

Please see the ratings disclosure page on www.moodys.com for information on (A) MCO's major shareholders (above 5%) and for (B) further information regarding certain affiliations that may exist between directors of MCO and rated entities as well as (C) the names of entities that hold ratings from MIS that have also publicly reported to the SEC an ownership interest in MCO of more than 5%. A member of the board of directors of this rated entity may also be a member of the board of directors of a shareholder of Moody's Corporation; however, Moody's has not independently verified this matter.

Please see Moody's Rating Symbols and Definitions on the Rating Process page on www.moodys.com for further information on the meaning of each rating category and the definition of default and recovery.

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

The date on which some ratings were first released goes back to a time before Moody's ratings were fully digitized and accurate data may not be available. Consequently, Moody's 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 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.

Edmond DeForest
Vice President - Senior Analyst
Corporate Finance Group
Moody's Investors Service, Inc.
250 Greenwich Street
New York, NY 10007
U.S.A.
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

Robert Jankowitz
Associate Managing Director
Corporate Finance Group
JOURNALISTS: 212-553-0376
SUBSCRIBERS: 212-553-1653

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

Moody's raises certain Realogy ratings: sr. uns. to Caa2; other ratings under review for upgrade
No Related Data.
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