PHH Corp., Mt. Laurel, N.J., plans to sell $250 million of unsecured debt, using the proceeds to pay off an equal amount of debt that comes due next April.
Fitch Ratings said it expects to rate the new bonds BB+, below investment grade, because of the volatility in the valuation of PHH's mortgage servicing rights portfolio and the uncertainty regarding regulations which impact the servicing business.
The MSR volatility could pressure GAAP earnings for the near term, but core profitability should be sustained because of PHH's ability to increase its market share of mortgage originations, along with growth in its fleet leasing business, Fitch said.
Among all mortgage lenders, PHH ranks sixth nationwide with a market share of 3.36%, according to figures compiled by National Mortgage News and the Quarterly Data Report.
According to SEC documents, as of Sept. 30, PHH had $1.1 billion of unsecured debt. It has no secured debt, but its subsidiaries have approximately $6.6 billion of liabilities to which the notes would be subordinated.
A covenant to the new issuance requires PHH to maintain a debt to tangible equity ratio not greater than 8.5-to-1.
The filing also said that pending the repayment of the April 2012 debt, the proceeds may be used to temporarily repay outstanding borrowings under its credit facility, originate mortgage loans, or may be invested temporarily in short-term interest-bearing investment funds or similar assets.
