Substantial doubt for Walter as a going concern

There is substantial doubt about Walter Investment Management Corp.'s ability to continue as a going concern if a restructuring plan is not approved and it needed to file a prepackaged bankruptcy plan.

The Fort Washington, Pa.-based company reported a loss of $49.3 million in the second quarter, which is an improvement over the restated loss of $490 million one year ago. Originally, Walter reported a $232.4 million loss for the second quarter of 2016.

At the end of July, Walter and the holders of more than 50% of its debt agreed to a financial restructuring of the company, including extending a debt maturity to June 2022. However, a prepackaged Chapter 11 bankruptcy plan has been prepared if the remaining debt holders do not consent to the restructuring.

Separately, in May Walter filed an 8-K with the Securities and Exchange Commission stating there was an error in the calculation in the valuation allowance of its deferred tax asset balances. As a result financial statements for the second quarter of 2016 and beyond could no longer be relied upon.

It filed its second-quarter 10-Q along with an amended 10-K for 2016 and amended 10-Qs for the second and third quarter of 2016 and the first quarter of 2017 on Aug. 9.

Because of the possibility Walter could file for bankruptcy, the second-quarter 10-Q as well as the amended annual and quarterly filings state that substantial doubt was raised about the company's ability to continue as a going concern.

Walter's second-quarter results include a $45.1 million noncash fair value charge. Total revenue increased by $21.3 million year-over-year to $208.8 million.

"We are making investments in technology, such as our recent implementation of a digital point of sale system in our originations business, and have improved our operating processes in all business segments, in each case with the goal of enhancing the customer experience," said CEO and President Anthony Renzi in a press release.

"We continue to make progress in our default servicing operations as we emphasize keeping customers in their homes and reducing delinquencies. Finally, we have taken additional steps to streamline operations and reduce our site footprint as we seek to continue to improve our cost structure."

Expenses were $292.6 million, an improvement from $565.8 million last year. Walter recorded a $215.4 million goodwill impairment in the second quarter of 2016. The reduced headcount at the company cut compensation and benefit expenses by $16.2 million compared to one year ago. Last summer it shut offices in Greensboro, N.C., San Antonio and Kennesaw, Ga.

In July, Walter announced plans to close its Irving, Texas, location by Dec. 31. That move cuts its workforce by 10%. It is evaluating options for eight other locations, but will maintain three core sites for its Ditech subsidiary and one site for its reverse mortgage servicing business.

The New York Stock Exchange sent a notice in July that Walter's stock price had fallen below compliance standards by closing under $1 per share for 30 trading days.

Ditech's origination's business had $20 million of pretax income, down from $45.6 million one year ago. It funded $4.2 billion during the period, compared with $4.8 billion last year.

The wholesale business, which Ditech re-entered in the third quarter of last year, had $222 million of volume versus $99.3 million in the first quarter.

The servicing segment had a pretax loss of $44 million, an improvement over a loss of $356 million one year ago.

Walter's reverse mortgage business had a $16.5 million pretax loss, an improvement from the $26.9 million loss in the second quarter last year.