Home Point looking to raise $500M in senior debt – About Your Online Magazine

Less than a week after the announcement its initial public offering, Home Point Capital goes to the debt market, seeking to raise US $ 500 million.

The offer, to be made in a private placement sale, will consist of senior unsecured notes due 2026. The Ann Arbor, Michigan based company plans to use up to 50% of the net proceeds to finance a distribution to its current owners. The remainder will reimburse the outstanding amounts under the mortgage service entitlement line.

This sale of notes was mentioned in the prospectus filed with the Securities and Exchange Commission, but specifications were missing. The notes will be secured by some of Home Point Capital’s restricted national wholly owned subsidiaries, including its Homepoint operating unit.

Fitch Ratings gave Homepoint, which identified under its legal name Home Point Financial, a long-term issuer default rating of “B” and placed it in Rating Watch Positive status. It also assigned an expected long-term IDR of “B + (EXP)” to the parent company Home Point Capital, and an expected rating of ‘B (EXP)’ / RR5 for the debt issue.

The debt supply is rated one notch below the long-term IDR, due to its subordination to guaranteed debt, in addition to a limited pool of unencumbered assets. Therefore, it has weaker prospects for relative recovery in a stress scenario, which is what “RR5” means.

The observation of the positive ratings reflects Fitch’s expectation of greater financing flexibility after the debt issue.

Fitch said it would raise Homepoint’s IDR rating by one level once the company has completed its unsecured debt issue. The company cited current economic conditions as one of the many reasons for its classification.

He also cited limitations such as “limited scale of Homepoint, above-average earnings volatility, partly driven by mortgage service rights assessment brands, confidence in guaranteed short-term wholesale financing resources, shorter operating history established in 2015 and private equity ownership through affiliated investment vehicles managed by Stone Point Capital, which increases the potential for capital extraction and restricts long-term strategic clarity. “

On the other hand, the performance of the quality of the assets in the Home Point service portfolio is solid, with low defaults in relation to competitors and the market in general in recent years.

“Although Homepoint’s maximum tolerance levels were above market averages, they have fallen and are now below the broadest levels in the market,” noted Fitch. “However, Fitch expects default rates to remain above historical averages for some time, as tolerance programs cease and the macroeconomic effects COVID-19 continue, which may result in increased maintenance costs

The $ 500 million debt issue and the $ 250 million distribution to current shareholders are expected to increase Homepoint’s leverage (as measured by gross debt to tangible equity) to 5.8x on a pro forma basis of 3.6x on September 20, 2020, said Fitch.

But this trend is expected to drop to 4.0x over the year, based on expectations of solid profits and the absence of new distributions to shareholders.

Once the debt issuance is completed, Fitch said it expects to raise Homepoint’s long-term IDR by one notch to “B +” and assign Home Point Capital a long-term final IDR and a senior unsecured debt rating. “B +” and a debt rating of “B / RR5.”

Paula Fonseca