Onity sells stake in JV as it ramps up capital restructuring

Onity on Monday announced several steps aimed at moving more quickly on efforts to strengthen its balance sheet, including selling its stake in a joint venture to its partner.

The company is selling a 15% investment in a mortgage servicing rights investment vehicle to Oaktree Capital Management. Oaktree also plans to participate as an anchor investor in an Onity debt financing. Onity additionally is engaging in debt reduction, asset sales and securitization.

Onity will sell its interest in MSR Asset Vehicle LLC to Oaktree for around $49 million, with the sale expected to close in the fourth quarter, contingent on approvals and the debt financing, which will refinance all outstanding PHH Mortgage Corp. 7.875% notes.

"We are pleased to announce the agreement with Oaktree that will enable a meaningful reduction of our highest cost corporate debt and continuation of our relationship with MAV," said Glen Messina, chairperson, president and CEO of Onity Group, in a press release.

How companies with servicing exposures are handling their MSR investment vehicles and balance sheets amid a recent shift in the interest rate environment has been closely watched by stakeholders.

For five years, Onity will maintain the status quo as the only subservicer for MAV's existing portfolio, which had an unpaid principal balance of $52 billion as of Aug. 31. It also will subservice most new MSRs acquired. MAV will have some sales restrictions for 36 months.

Onity also will redeem a minimum of $150 million in notes during the fourth quarter. It's doing this in conjunction with requirements to redeem a principal amount equal to the proceeds from the MAV sale plus other transactions, subject to certain adjustments.

Oaktree also will receive a transaction fee of as much as roughly $16 million depending on the previously mentioned financing's size, pricing and other conditions. 

The other transactions that the aforementioned proceeds are based on include the Mortgage Assets Management deal announced over the summer. In that transaction, Onity is buying substantially all MAM's assets, which have an aggregate value of $55 million.

Also included in the transaction list is a securitization that included reverse mortgage assets recently purchased from a large, unnamed financial institution in September. Onity said that transaction has provided $46.1 million in liquidity to its PHH Mortgage Corp. unit to date.

In addition, Onity reported that it was on track to complete a sale of MSRs from loans sold to Fannie Mae and Freddie Mac by the end of the business day on Monday.

The company anticipated that sale would reduce its MSR debt by $73.4 million and generated roughly $26.5 million in cash proceeds that it plans to use to pay down corporate debt.

Collectively, the moves "should aid the company's ongoing deleveraging efforts" as intended, Keefe, Bruyette & Woods said in a report on Onity's announcement.

"While likely to reduce earnings given the transactions are reducing the size of ONIT's MSR portfolio, the ultimate impact will depend on the size and cost of new debt issuance," they said.

"While we think the market should react positively to the continued deleveraging efforts, the impact could be neutral given the +20% move in shares on Friday."

Onity's shares were trading just above $34.50 around noon Eastern on Monday, nearly flat compared to an opening price of $34.75.