NEW YORK--(BUSINESS WIRE)--Fitch Ratings has affirmed the long-term Issuer Default Rating (IDR) and short-term IDR of Ocwen Financial Corp. (Ocwen) at 'B+' and 'B', respectively. The Rating Outlook is Stable. A full list of ratings follows this release.
This action follows the company's recent announcement that it is pursuing a corporate reorganization with the planned sale of assets to a newly formed company called Home Loan Servicing Solutions, Ltd. (HLSS). Under the terms of the proposed transaction, HLSS would acquire a portion of Ocwen's mortgage servicing rights (MSRs) and assume its related match funded liabilities. HLSS will then engage Ocwen to subservice the MSRs under a contractual agreement. The transaction, which is scheduled to be completed within the next several months, is contingent upon HLSS raising sufficient funds in an initial public offering (IPO).
Proceeds from the sale of Ocwen's MSRs are expected primarily to be used to pay down outstanding debt, which is expected to significantly reduce the company's leverage and yield greater earnings consistency over time, given the absence of MSR valuation adjustments and a decline in interest costs. However, a significant portion of the company's revenues going forward are likely to come from subservicing revenue received from HLSS. Additionally, in Fitch's view, any positive impact from Ocwen's de-leveraging could be constrained due to the shifting of balance sheet leverage from Ocwen to a close affiliate, HLSS, on which a significant portion of its future revenue will be dependent.
The Stable Rating Outlook continues to be supported by Ocwen's ability to generate a reliable earnings stream and stable operating cash flows consistent with the rating level. As a low cost servicer for subprime and high risk assets, Fitch believes that while Ocwen's expertise will remain in demand for the near future, the company's performance may come under pressure in the longer term as the subprime share of the mortgage market shrinks in line with a broader economic recovery.
Still, negative rating action could develop should Ocwen's revenues be hurt by aggressive management of HLSS's balance sheet or should heightened scrutiny of the mortgage market by regulators lead to unexpected costs being imposed on mortgage servicers. Conversely, positive rating momentum could only emerge over time once Fitch has gained comfort that Ocwen, post the restructuring, is able to consistently generate a predictable operating cash flow stream over the foreseeable future.
Ocwen Financial Corporation (NYSE: OCN), through its subsidiaries, is a provider of residential and commercial mortgage loan servicing, special servicing and asset management services. Ocwen is headquartered in Atlanta, Georgia, with offices in the West Palm Beach, Florida, the District of Columbia, and global operations in India and Uruguay. Ocwen is a Florida corporation organized in February 1988. As of Dec. 31, 2010, the company had $2.9 billion in assets.
Fitch affirms the following ratings with a Stable Outlook:
Ocwen Financial Corp.
--Long term IDR at 'B+';
--Short-term IDR at 'B';
--Senior Secured at 'BB-/RR3'.
Additional information is available at www.fitchratings.com.
Applicable Criteria and Related Research:
--'Global Financial Institutions Rating Criteria', Aug. 16, 2010;
--'Finance and Leasing Companies Criteria', Dec. 13, 2010;
--'Recovery Ratings for Financial Institutions', Dec. 30, 2009.
Applicable Criteria and Related Research:
Global Financial Institutions Rating Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=547685
Finance and Leasing Companies Criteria
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=587245
Recovery Ratings for Financial Institutions
http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=493330
ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE.