Less than a week after announcing
The offering, to be made in a private placement sale, will consist of senior unsecured notes due in 2026. The Ann Arbor, Mich.-based company plans to use up to 50% of the net proceeds to fund a distribution to its current owners. The remainder will repay outstanding amounts under its mortgage servicing rights financing facility.
This note sale was mentioned in the prospectus filed with the Securities and Exchange Commission, but it lacked specifics. The notes will be guaranteed by some of Home Point Capital's wholly owned domestic restricted subsidiaries, including its Homepoint operating unit.
Fitch Ratings gave Homepoint, which it identified under its legal name of Home Point Financial, a long-term issuer default rating of "B" and placed it on Rating Watch Positive status. It also assigned an expected long-term IDR of "B+(EXP)" to parent company Home Point Capital, and an expected rating of 'B(EXP)'/RR5 to the debt issuance.
The debt offering is rated one notch below the long-term IDR, given its subordination to secured debt, plus a limited pool of unencumbered assets. It therefore has weaker relative recovery prospects in a stressed scenario, which is what the "RR5" signifies.
The positive ratings watch reflects Fitch's expectation of increased funding flexibility following the debt issuance.
Fitch said it would increase Homepoint's IDR rating by one notch once the company completes its issuance of unsecured debt. The firm cited current economic conditions as one of the many reasons for its rating.
It also cited limitations such as "Homepoint's limited scale, above-average earnings volatility, partially driven by mortgage servicing rights valuation marks, reliance on secured, short-term wholesale funding facilities, shorter operating history having been established in 2015, and private equity ownership through affiliated investment vehicles managed by Stone Point Capital, which increases the potential for capital extraction and constrains long-term strategic clarity."
On the other hand, the Home Point servicing portfolio's asset quality performance is solid, with delinquencies that are low relative to both its peers and the overall market in recent years.
"While Homepoint's peak forbearance levels were above market averages, they have since declined and are now below broader market levels," Fitch noted. "However, Fitch expects delinquencies to remain above historical averages for some time as
The $500 million debt issuance and $250 million distribution to current shareholders is expected to raise Homepoint's leverage (as measured by gross debt to tangible equity) to 5.8x on a pro forma basis from 3.6x as of Sept. 20, 2020, Fitch said.
But that should trend down to 4.0x throughout the year based on expectations of solid earnings and absent any further shareholder distributions.
Once the debt issuance is completed, Fitch said it expects to upgrade Homepoint's long-term IDR by one notch to "B+" and to assign Home Point Capital a final long-term IDR and senior unsecured debt rating of "B+" and debt rating of "B/RR5."
