Ocwen began a quest to rid itself of its massive agency mortgage servicing rights holdings in December, when the company unveiled a new direction for its future.
In March, the company said it was selling a $25 billion MSR portfolio to Nationstar Mortgage (NSM), just over a month after agreeing to sell another $9.8 billion portfolio of agency servicing to Nationstar.
In a new report released Wednesday, Moody’s upgrades several of Ocwen’s ratings and writes that Ocwen’s MSR sales and the proceeds of those sales can go a long way to preserving the future of the beleaguered nonbank, but cautioned that the nonbank isn’t out of the woods yet.
“The rating actions follow the company's recently announced mortgage servicing rights sales which will provide the company significant liquidity,” Moody’s said in the report.
“The company has stated their intention to use the cash generated from the sales to deleverage, if so, we estimate that the cash from the announced and proposed 2015 sales would be sufficient to fully repay the company's outstanding senior secured term loan,” the report continues.
“Furthermore, we estimate that cash plus unencumbered servicer advances would provide the company with sufficient liquidity to fully repay the company's unsecured debt, if it so elected,” Moody’s said. “In addition, the company's receipt of an unqualified audit opinion is a positive development.”
In response to Ocwen’s recent actions, Moody’s upgraded Ocwen’s corporate family rating from B3 to B2; its senior secured bank credit facility rating from B3 to B2; and its senior unsecured debt rating from Caa1 to B3.
According to Moody’s report, Ocwen has signed letters of intent to sell off MSRs totaling approximately $90 billion in unpaid principal balance of performing agency loans, which Moody’s report states is approximately 23% of loans Ocwen serviced and subserviced as of Dec. 31.
But Moody’s notes that despite the upgrade, Ocwen isn’t on fully solid ground yet
“While we believe once the announced MSR sales close that the company will have sufficient resources to repay its outstanding corporate senior secured loan and senior unsecured notes, Ocwen still faces significant challenges to reestablish a resilient business model,” Moody’s said.
Moody’s said that Ocwen's ratings could be downgraded in the event that the announced MSR sales do not close as expected or in the event that it is subject to additional regulatory action resulting in material fines.
Moody’s also said that Ocwen’s ratings could be downgraded if the company’s business model is expected to shift to areas with even greater operating risk, or if the company's servicing performance or financial fundamentals materially weaken.
“Given the challenges Ocwen faces to reestablish a resilient business model, an upgrade is unlikely at this time,” Moody’s said.