New Residential (NRZ +2.7%) initially knee-jerked lower last night and in the premarket following a sizable secondary offering used to finance its asset purchase of basically all of Home Loan Servicing Solutions (HLSS -4%). The stock, however, has now turned higher as investors focus on the improved pricing for NRZ - getting HLSS for $17.08 instead of $18.25.
Ocwen Financial (OCN +10.3%) is surging as New Residential agrees to extend contracts allowing it to service HLSS's MSRs, and on a two-year agreement not to transfer servicing rights away from Ocwen. Altisource Portfolio Solutions (ASPS +17.6%), Altisource Asset Management (AAMC +9.8%).
The two terminate late February's merger agreement in which New Residential (NYSE:NRZ) was going to purchase Home Loan Servicing Solutions (NASDAQ:HLSS) for $18.25 per share in cash, or roughly $1.3B, and instead enter an asset purchase agreement in which NRZ has paid $1.2B or $17.08 for all 71M shares of HLSS. Adjusting for cash and repayment of HLSS debt, the price works out to about $1B in cash and 28.3M newly issued shares of NRZ - roughly $1.4B.
The deal had the approval of both boards and did not require a shareholder vote.
In addition, New Residential agrees to a multiyear extension of the servicing contracts with Ocwen Financial (NYSE:OCN).
Alongside, New Residential announces a 40M share secondary - 28.3M shares being sold by HLSS and another 11.7M shares by the company. The underwriter greenshoe is another 6M shares.
As New Residential (NRZ +5%) releases a presentation on its deal to purchase Home Loan Servicing Solutions (HLSS +10.1%) and begins a conference call to discuss the transaction, the stock of HLSS begins to trade north of the $18.25 cash per share purchase price, now currently at $18.52.
Adding $165B in UPB of MSRs (at book value, and at what may or may not be the lows of the interest rate cycle), New Residential expects the deal to be accretive to future earnings and drive long-term growth opportunities as it expands its servicing relationships to now include Ocwen Financial along with Nationstar Mortgage.
Investors do the math on New Residential's (NRZ +4.6%) purchase of Home Loan Servicing Solutions (HLSS +8.8%), and decide the acquirer has made a nice deal for itself (the stock initially knee-jerked lower in premarket action).
Via twitter, Tom Adams relays the thoughts of value investor Mangrove Partners. The Cliff's Notes: A great deal for New Residential, but potential trouble for Ocwen Financial (OCN -5.3%).
NRZ's purchase of HLSS, says Mangrove, increases the chances Ocwen is terminated as servicer, costing it about $650M in earnings via fee income and cleanup costs. Basically, New Residential and its manager Fortress Investments (FIG +1.7%) could end up with Ocwen's servicing rights for free while buying Home Loan Servicing at book value.
A dial-in conference call with the NRZ and HLSS management teams is set for 11 ET.
There's finally a deal for one of the troubled Ocwen Financial family of businesses, with New Residential (NYSE:NRZ) agreeing to buy Home Loan Servicing (NASDAQ:HLSS) for $18.25 per share in cash - a total price of about $1.3B.
The deal is expected to close in Q2.
New Residential CEO Michael Nierenberg: "The acquisition will significantly add to the value of our book of mortgage servicing assets and expand our relationships with mortgage servicers to include both Nationstar Mortgage and Ocwen Financial."
A steal? HLSS has trundled along between $20 and $25 per share for the last two years (while paying a sizable dividend). It fell to as low as about $10 earlier this year amid Ocwen's regulatory issues.