Realogy Holdings Corp., the most indebted U.S. real-estate services company, will seek to negotiate a lower interest rate on its most senior debt obligations next year.
The firm controlled by Leon Black’s Apollo Global Management LLC is planning to reduce how much it pays on a $1.9 billion term loan that it repriced in February, according to Anthony Hull, the chief financial officer. It currently pays 3.5 percentage points more than the London interbank offered rate, according to data compiled by Bloomberg.
A recovery in the housing market, which has led to Realogy’s first profitable quarter in three years, will allow the Parsippany, N.J.-based company to continue cutting its debt costs, Hull said in a July 24 telephone interview. Realogy has decreased its total interest expense to $255 million from $672 million a year ago, he said.
“We can reprice our term loan next March, so we’d probably look at that opportunity to reduce our overall interest costs at that point,” Hull said.
New home sales rose 8.3% to an annualized pace of 497,000 in June, the highest level since May 2008, the Commerce Department said July 24. Existing home sales fell 1.2 percent in June to a 5.08 million annualized rate, a level 15.2% higher than a year ago, the National Association of Realtors reported July 22.
Realogy’s net income rose to $84 million in the three months ended June 30, the first time it’s reported a profit since the second quarter of 2010, Bloomberg data show. The real estate brokerage raised $1.08 billion in an initial public offering in October, using the proceeds to help reduce debt.
Realogy’s total obligations relative to its earnings before interest, taxes, depreciation and amortization rose to 16 times in 2011, Bloomberg data show. Moody’s Investors Service increased the company’s rating to B3 in December, citing leverage that is making progress to fall below 7 times in the next 18 months, according to a Dec. 10 report.
The company is seeking to reduce its leverage ratio to as little as three times and use free cash flow to retire more debt and to increase Ebitda to $1 billion from $523 million in 2012, Hull said. Realogy may reach $915.5 million in annual Ebitda by the end of 2014, according to the median of six analyst estimates compiled by Bloomberg.
“It really depends what happens to existing home sales and prices over the next 12-36 months as to how fast our Ebitda gets to those levels,” said Hull. “If we got to $1 billion of Ebitda and we got our debt down $2 billion from its current level of $4 billion, we would be at that three times leverage ratio.”
Realogy may repay its $700 million of 7.875% notes when they become callable at 103.9 cents on the dollar in February 2015, Hull said. Those securities were quoted at 109.1 cents on July 26, according to prices compiled by Bloomberg.
Apollo Global Management LLC took Realogy private in April 2007 with $920 million of its own money as part of an $8.3 billion leveraged buyout, just before the housing downturn. Apollo returned twice its investment on the six-year-old transaction after selling 25.1 million shares in the company for $47.57 a share, or $1.2 billion, in a secondary public offering July 16, Realogy said in a July 18 regulatory filing.
