Fitch Ratings said Thursday that Freedom Mortgage Corporation’s acquisition of RoundPoint Mortgage Servicing will not affect its corporate rating. In fact, it expects the merger to benefit the firm’s franchise.
Last week, the two companies announced a plan to merge in a deal with will make RoundPoint a wholly owned subsidiary of Freedom, which will then become the 7th largest servicer in the U.S.
With RoundPoint’s assets in hand, Freedom will boost its portfolio of mortgage servicing rights to more than $300 billion, gain an active subservicing platform and broaden its origination network by folding in RoundPoint’s retail and correspondent origination channels.
Fitch said the merger will not have a material impact on Freedom’s leverage, and that it believes “the merger will enhance Freedom's scale and broaden its origination and servicing capabilities.”
Freedom and RoundPoint did not disclose the financial terms of the deal, but Fitch revealed that Freedom plans to finance the transaction with cash on hand and available capacity on its existing borrowing facilities.
“This is consistent with Freedom's strategy of using available liquidity to fund deals that have been immediately accretive to the company,” Fitch added. “Fitch believes Freedom's liquidity position is sufficient, given balance sheet cash, cash flow from operations, and ample borrowing capacity on committed facilities.”
While the ratings agency acknowledges that a deal of this size does come with potential integration risks and warns that servicing disruptions could occur during the transition that might impact earnings and yield negative ratings, it affirmed its believe in the benefit of the deal.
“Freedom has a strong track record of successfully acquiring and integrating various origination and servicing businesses onto its platform,” Fitch noted.