Fitch previously downgraded PHH to 'BB-' on Rating Watch Negative from 'BB' on Rating Watch Evolving on
KEY RATING DRIVERS - IDRS AND SENIOR DEBT
The affirmation of PHH's ratings and the removal of the Rating Watch Negative follow the closing of the auto fleet leasing business sale and the company's announced capital allocation plan for its stand-alone mortgage business, which results in improved in capitalization, leverage and liquidity primarily due to
The Negative Outlook reflects uncertainty and execution risk associated with the planned re-investing in and re-engineering of the company's mortgage origination and servicing business, in order to improve profitability, particularly in light of up to
The company has identified ambitious plans to improve its mortgage origination and servicing business, including renegotiating existing private label mortgage servicing contracts with clients at more favorable economic terms. Fitch believes that there is significant uncertainty and execution risk with this strategy due to the inherently cyclical nature of the mortgage origination business and the capital intensive nature and highly volatile earnings profile of the mortgage servicing business. Furthermore, the overall mortgage business remains subject to intensive regulatory and legislative scrutiny, which could potentially be a drain on cash resources.
Liquidity, as measured by balance sheet cash, is bolstered by the
RATING SENSITIVITIES - IDRS AND SENIOR DEBT
Inability to renegotiate existing private label contracts at more favorable economic terms, loss of clients, weakening in PHH's competitive position, and/or sustained operating losses would lead to negative rating actions. In addition, a sustained increase in leverage, reduction in liquidity due to higher than expected operational and contingency needs, or higher than planned share repurchases would also be viewed negatively.
Successful execution of management's strategic objectives as measured by strengthened competitive position, higher client contract renewals, and sustained increased in earnings and cash flows, while maintaining appropriate capital and liquidity levels could result in the Outlook being revised to Stable from Negative. Even the expected time it will take to implement the proposed strategic changes and observe meaningful change, Fitch expects that resolution of the Negative Rating Outlook could be towards the outer end of the 12 to 24 month Outlook horizon.
Fitch removes from Rating Watch Negative and affirms the following ratings:
--Long-term IDR at 'BB-';
--Senior unsecured debt at 'BB-';
--Short-term IDR at 'B';
--Commercial paper at 'B'.
The Rating Outlook is Negative.
Additional information is available at 'www.fitchratings.com'.
--'Global Financial Institutions Rating Criteria' (
--'Finance and Leasing Companies Criteria' (
Global Financial Institutions Rating Criteria
Finance and Leasing Companies Criteria
Mohak Rao, CFA
Source: Fitch Ratings
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