Turbulence Did Not Affect HLSS Growth and Earnings

Despite the recent market turbulence Home Loan Servicing Solutions reported net income of $27.9 million, or $0.48 per ordinary share, for the second quarter and expects to see further growth.

That optimism is based on expectations to see “meaningful earnings accretion from the addition of the senior secured term loan to our capital structure in June," said president and CEO John Van Vlack.

Quarter highlights include the May completion of the issuance of $375 million two-year and $475 million four-year term notes secured by servicing advance receivables at a weighted average interest spread over Libor of 1.04%.

Total gross proceeds of $850 million “were used to reduce borrowings on variable funding notes,” HLSS said.

Also in May the servicer completed the acquisition of mortgage servicing rights of nonagency mortgage loans with UPB of $10.6 billion from Ocwen Financial Corp. that brought in UPB of $99.9 billion as of June 30.

At the end of the quarter HLSS entered into a $350 million seven-year senior secured term loan facility that accrues one-month Libor plus 3.5% interest on a 1% Libor floor.

Earnings included a $0.02 per share benefit from lower-than-expected amortization.

According to chairman William Erbey, in the second quarter of its second year of operations, HLSS continued to grow the business exceeding expectations thanks to “record earnings, low prepayments, stable asset valuations and lower advance financing costs."

The valuation of HLSS’ servicing assets, which are overcollateralized 25 times by residential real estate, did not change during the second quarter. The firm’s forward strategy did not change either and will focus on its MSR portfolio expansion.

On July 1 HLSS invested the proceeds from the issuance of ordinary shares and a senior secured term note facility to purchase from Ocwen nonagency mortgage servicing assets with UPB of $83.6 billion.

Earnings and the large asset purchase on July 1 supported the board's decision to increase the dividend to $0.15 per share per month for the third quarter of 2013, Erbey said.