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Msg  2841 of 3907  at  6/18/2019 4:38:51 PM  by


Good comments from Nomura

Evolution Continues To Operating Model

Deal could be potentially $0.08-$0.10/share accretive with longer-term
upside potential

NRZ announced this morning it is the "stalking horse" bid for most of
Ditech’s assets, which are primarily its $63bn MSR and servicing advance
book (NRZ is not bidding on Ditech’s reverse mortgage business). If NRZ is
awarded the transactions, management expects the deal to close in 2H19
(projected in August). The break-up fee is $30mn. Importantly, NRZ does
not intend to issue any new equity with the deal but instead fund it with cash
on hand and credit facilities. Management expects the deal to be between
$0.08 and $0.10/share accretive and have no impact on book value. We
believe there is low risk to a third party outbidding NRZ, given the length of
time Ditech has been on the block. However, we will update our estimates
following the official award from the courts.

The total asset purchase price is reported around $1bn, but NRZ expects to
deploy $225-250mn of capital, which will be mainly funded with its $400mn
cash position. The key assets of the deal with Ditech are: 1) $63bn (UBP)
MSR portfolio, which is mainly agency. The fair value is around $500mn
(will be adjusted at closing). 2) $320mn of associated servicing advance
receivables. 3) Origination assets tied to the conforming business.

While the MSR assets only should add somewhere in neighborhood of
$0.02-$0.03 per quarter to NRZ’s core EPS, the longer-term upside
potential with the originations (and added servicing infrastructure) could be
greater. NRZ’s origination capacity moves to the mid-$20bn range (from
$14-15bn) and Ditech’s Arizona-based calling center provides them with a
key West Coast presence. The new origination capacity brings NRZ closer
to covering its MSR run-off organically (which is around $50bn a year),
allows it to improve recapture (target is around 30%), and puts it in position
to capture more ancillary income (i.e., title, inspection, property
preservation, etc.).

NRZ management noted they are less constructive on the acquisition
environment, given low rates and tight credit spreads. As a result, buying
more origination capacity makes sense to them, and they noted the
company’s New Rez/Shellpoint business is on pace to achieve $100mn in
EBITDA. We note that NRZ paid just over $200mn for this business, and it
is on track to be worth much more.


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Msg # Subject Author Recs Date Posted
2845 Re: Good comments from Nomura kowman 0 6/18/2019 7:41:37 PM

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