News Column

Fitch Expects to Rate Ocwen's Senior Unsecured Notes 'CCC/RR6'

May 8, 2014

CHICAGO--(BUSINESS WIRE)-- Fitch Ratings expects to rate Ocwen Financial Corporation's (OCN) proposed five-year, $350 million 6.625% senior unsecured note issuance 'CCC/RR6'subject to receipt of final documents conforming to information already received . The final maturity date in 2019 will be set at the time of issuance.

KEY RATING DRIVERS

The expected 'CCC' rating of the notes, which is two notches below OCN's long-term IDR of 'B', reflects the company's predominately secured funding profile and the modest level of unencumbered balance sheet assets available to support the unsecured noteholders in a stressed scenario. Pro forma for the debt issuance, OCN's funding profile would be 93% secured. The expected Recovery Rating of 'RR6' reflects Fitch's expectation that recovery prospects for the notes are poor, and could be as low as 0%-10% in a stress scenario.

The notes are expected to rank equally in right of payment with all existing and future senior unsecured indebtedness and will be effectively subordinated to all of OCN's secured indebtedness and all of the existing and future liabilities of OCN's subsidiaries.

The proceeds of the issuance are expected to be used for general corporate purposes, including financing the repurchase of OCN's common shares. Fitch views using debt for share repurchases as non-creditor friendly. Leverage, as measured by total debt to tangible equity is expected to increase from 3.6x as of March 31, 2014 to 5.2x on a pro forma basis, assuming 100% of the proceeds from the debt issuance were used to repurchase common shares.

OCN has a long-term Issuer Default Rating (IDR) of 'B' and a Stable Rating Outlook. The long-term IDR reflects OCN's operating cash flow generation and sufficient liquidity, positive asset/liability positioning relative to a rising rate environment, and appropriate capitalization and leverage for its current ratings. Rating constraints include continued regulatory scrutiny of the mortgage servicing industry, organizational complexity and governance limitations associated with OCN and its affiliate companies, an aggressive historical growth strategy which has increased integration and balance sheet risks, and low Fitch Core Capital levels.

RATING SENSITIVITIES - UNSECURED NOTES

The rating of the senior unsecured notes will be sensitive to any changes in OCN's long-term IDR as well as to changes in OCN's funding profile, the mix of secured versus unsecured funding, and unencumbered asset coverage. A material increase in unsecured funding, combined with a material improvement in unencumbered asset coverage could reduce the notching between the IDR and the unsecured notes and/or improve the Recovery Rating.

RATING SENSITIVITIES - IDR

Positive rating momentum in OCN's IDR could be driven by sustained and effective management of the regulatory environment, reduced organizational complexity, a continued moderation in OCN's pace of growth, successful integration of recently acquired mortgage servicing rights, reduced overall leverage through consistent cash flow generation and deleveraging over time, and improved Fitch Core Capital levels.

Conversely, negative rating action for OCN's IDR would be driven by a considerable reduction in revenue and cash flow generation caused by deterioration in portfolio performance, or a material change in OCN's cost structure resulting from integration, legal or regulatory risks. In addition, future large-scale portfolio or business acquisitions that materially increase leverage over a sustained period could also result in further negative rating actions.

Fitch assigns expected ratings to the following:

Ocwen Financial Corporation

--Senior unsecured notes 'CCC/RR6'.

Fitch currently rates the following:

Ocwen Financial Corporation

--Long-term IDR of 'B';

--Short-term IDR of 'B'.

Ocwen Loan Servicing, LLC

--Long-term IDR of 'B';

--Senior secured term loan of 'B/RR4'.

The Rating Outlook is Stable.

Additional information is available at 'www.fitchratings.com'.

Applicable Criteria and Related Research

--Global Financial Institutions Rating Criteria (Jan. 31, 2014);

--'Recovery Ratings for Financial Institutions' (Sept. 24, 2013);

--'Finance and Leasing Companies Criteria' (Dec. 11, 2012).

Applicable Criteria and Related Research:

Finance and Leasing Companies Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=696720

Recovery Ratings for Financial Institutions

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=717538

Global Financial Institutions Rating Criteria

http://www.fitchratings.com/creditdesk/reports/report_frame.cfm?rpt_id=732397

Additional Disclosure

Solicitation Status

http://www.fitchratings.com/gws/en/disclosure/solicitation?pr_id=829278

ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.



Fitch Ratings

Primary Analyst

Johann Juan

Director

+1-312-368-3339

Fitch Ratings, Inc.

70 West Madison Street

Chicago, IL 60602

or

Secondary Analyst

Brendan Sheehy

Director

+1-212-908-9138

or

Committee Chairperson

Tara Kriss

Senior Director

+1-212-908-0369

or

Media Relations:

Brian Bertsch, +1-212-908-0549 (New York)

brian.bertsch@fitchratings.com


Source: Fitch Ratings


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