Cendant Completes Planned Spin-Off of Mortgage Subsidiary

Cendant Corp. here earlier this month spun-off its mortgage and fleet unit to the public, a move that will cost the parent company as much as $650 million after taxes.

Late in its first week of trading, shares of the new company, which is called PHH Corp., were trading at about $20.20 each, which gave it a market capitalization of about $1.06 billion - about half of what Cendant tried to sell the mortgage unit for last year. "If I'm a shareholder of Cendant, I'm not a happy person," said one investment banker familiar with PHH Mortgage, formerly known as Cendant Mortgage.

In a statement, Cendant said it would take a non-cash impairment charge in connection with the spin-off "to reflect any difference between PHH's carrying value and PHH's market value."

A non-depository lender, PHH Mortgage is the nation's 10th largest residential servicer with $147 billion in receivables. The mortgage company is based in Mount Laurel, N.J.

It is best known in the industry as a private-label funder with a client list that includes several financial service firms, including Merrill Lynch. Among originators, PHH ranks 10th nationwide.

The company is traded on the New York Stock Exchange under the symbol PHH and has 52.7 million shares outstanding.

Shareholders in the parent company will receive one share of PHH for every 20 shares they own in Cendant. Cendant is a provider of travel and real estate services and owns several realty firms.

PHH, like many residential servicers, has been forced to take large "impairment" charges on its servicing portfolio during the refi boom of 2001-2004.

Cendant's chairman, Henry Silverman, was less than happy with the cyclical nature of the mortgage business. In remarks made to analysts last year, Mr. Silverman lamented that the mortgage company "gets about 95% of the attention but it only accounts for about 5% of our earnings."

Mr. Silverman estimated that about 30% of PHH's production is sourced through Cendant-owned realty firms. The mortgage unit, the nation's largest private-label originator, earns about $120 million a year after taxes.

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