December 2, 2016 / 2:37 PM / in a year

Fitch Expects to Rate Ocwen Loan Servicing's Debt 'B-/RR4' and 'CCC/RR5'

(The following statement was released by the rating agency) CHICAGO, December 02 (Fitch) Fitch Ratings has today assigned expected ratings of 'B-(EXP)/RR4' to the proposed $335 million four-year, senior secured first-lien term loan due 2020 and 'CCC(EXP)/RR5' to the proposed $350 million six-year, senior secured notes due 2022 issued by Ocwen Loan Servicing, LLC (OLS). OLS is the primary operating company and wholly-owned subsidiary of Ocwen Financial Corporation (OCN). A full list of rating actions is at the end of this release. KEY RATING DRIVERS IDRS AND SENIOR DEBT The expected rating of 'B-(EXP)/RR4' assigned to the senior secured first-lien term loan (senior secured term loan) reflects equalization of the debt with the Long-Term Issuer Default Ratings (IDRs) assigned to OLS and OCN, as well as the average recovery prospects in a stressed scenario based upon available collateral coverage for the term loan. The debtholders benefit from a first-priority lien in selected unencumbered assets of OCN and a pledge of capital stock of its guarantor subsidiaries. The expected rating of 'CCC(EXP)/RR5' assigned to the senior secured notes reflects a one-notch differential below the Long-Term IDRs assigned to OLS and OCN, as well as the below average recovery prospects in a stressed scenario based upon available collateral coverage for the bond. The bondholders benefit from a second-priority, junior interest in the same assets that secure the first-lien senior secured term loan, pursuant to an intercreditor agreement. Fitch does not believe there will be a material impact to OCN's overall leverage resulting from the issuance, as proceeds will be used to repay existing outstanding debt and for general corporate purposes. Therefore, the expected issuance has no impact to OCN or OLS's Long-Term IDR or Stable Outlook, although Fitch acknowledges that using the proceeds of the issuances to refinance near-term maturities would improve OCN's debt maturity profile. OCN's reported standalone leverage, defined as debt to tangible equity, was 3.75x as of Sept. 30, 2016. However, Fitch assesses leverage on a consolidated debt to tangible equity basis, which amounted to 6.22x as of Sept. 30, 2016 and consistent with the current rating category. Fitch calculates the consolidated leverage metric including the debt and equity from Altisource Portfolio Solutions S.A., which provides technology, servicing software, and short sale real estate owned-management to OCN, and the servicing advance facilities and value of the rights to mortgage servicing rights (MSRs) held by New Residential Investment Corp. (NRZ) for which OCN currently acts as servicer. OCN's ratings are supported by its scale and market position within the subprime mortgage servicing industry, sufficient liquidity and cash flow generation capacity, and appropriate capitalization and leverage for its current ratings. Rating constraints include longer-term challenges regarding OCN's strategic direction and financial performance under heightened operational and governance frameworks resulting from elevated regulatory scrutiny and compliance standards. In particular, OCN faces execution risk associated with building a lending platform positioned for sustainable growth, and earnings pressure associated with increased compliance costs. The Stable Rating Outlook reflects Fitch's expectation that OCN's financial profile will remain fairly stable over the outlook horizon, particularly concerning its operating cash flow generation, leverage, and near-term funding obligations. In addition, OCN's ratings are already at a highly speculative rating level, which incorporates the potential business-, financial-, and compliance-related challenges associated with the company's current operations. OLS's ratings reflect its status as an operating company and a wholly-owned subsidiary of OCN. The IDR of OLS is aligned with those of OCN because of the unconditional guarantee provided by OCN and its guarantor subsidiaries. RATING SENSITIVITIES IDRS AND SENIOR DEBT The expected ratings assigned to the senior secured term loan and senior secured notes are primarily sensitive to changes in OLS and OCN's Long-Term IDRs, as well as changes in collateral values and advance rates under the secured borrowing facilities, which ultimately impact the level of available asset coverage. Fitch does not envision upward rating momentum for OCN at this time given the on-going long-term strategic uncertainty and execution risks noted above, combined with recent profitability challenges. However, the Rating Outlook could be revised to Positive if OCN can continue to demonstrate progress in complying with its consent orders and independent monitors, further improve its overall corporate governance framework, strengthen its financial position, and establish a sustainable and competitive business model as a mortgage lender without incurring outsized credit risk. The ratings could be downgraded or the Outlook could be revised to Negative as a result of: --Material fines or penalties or further restrictions on business activities resulting from additional lawsuits or regulatory actions. --Sustained strategic uncertainty, including inability to build a sustainable mortgage origination platform or material expansion into businesses outside of OCN's core business. --Insufficient cash coverage of near-term debt maturities. --A sustained increase in balance sheet leverage on a consolidated basis and/or a reduced commitment by management to reduce balance sheet leverage. --Aggressive capital management. --A material transfer of servicing duties due to the termination or maturity of the servicing contracts from NRZ. The ratings of OLS are sensitive to the same factors that might drive a change in OCN's IDR due to the unconditional guaranty provided by OCN and its guarantor subsidiaries. Established in 1988 and headquartered in West Palm Beach, FL, OCN a financial services company engaged in loan origination and servicing. The company has offices and operations throughout the U.S., U.S. Virgin Islands, India and the Philippines. The company's stock is listed on the NYSE under the ticker 'OCN'. Fitch has assigned expected ratings as follows: Ocwen Loan Servicing, LLC --Senior secured term loan 'B-(EXP)/RR4'; --Senior secured notes 'CCC(EXP)/RR5'. Fitch currently rates the following: Ocwen Financial Corporation --Long-Term IDR 'B-'; --Short-Term IDR 'B'; --Senior unsecured notes 'CC/RR6'. Ocwen Loan Servicing --Long-Term IDR 'B-'; --Senior secured term loan 'B-/RR4'. The Rating Outlooks are Stable. Contact: Primary Analyst Johann Juan Director +1-312-368-3339 Fitch Ratings, Inc. 70 West Madison Street Chicago, IL 60602 Secondary Analyst Michael Taiano, CPA Director +1-646-582-4956 Committee Chairperson Justin Fuller, CFA Senior Director +1-312-368-3153 Media Relations: Hannah James, New York, Tel: + 1 646 582 4947, Email: Date of Relevant Committee: Nov. 9, 2016 Summary of Financial Statement Adjustments: Fitch has made no adjustments that are not disclosed within the company's public filings. Additional information is available on Applicable Criteria Global Non-Bank Financial Institutions Rating Criteria (pub. 15 Jul 2016) here Additional Disclosures Dodd-Frank Rating Information Disclosure Form here _id=1015748 Solicitation Status here Endorsement Policy here ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: here. 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