Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Debt Investor Presentation (January 2014)
40 slides from Onity's debt investor presentation, Jan 28, 2014
Slide 1: Lenders' Presentation January 28, 2014
Lenders’ Presentation January 28, 2014 © 2014 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-Looking Statements and Non-GAAP Financial Measures
Forward-Looking Statements and Non-GAAP Financial Measures Forward Looking Statements This presentation contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Forward-looking
Slide 3: Agenda
Agenda Overview Wells Fargo Securities Ocwen Ron Faris Key Investment Highlights Ocwen John Britti Summary Terms and Timeline Wells Fargo Securities Questions and Answers Senior Secured Term Loan 2
Slide 4: Overview
Overview Senior Secured Term Loan 3
Slide 5: Presenters
Presenters Ronald M. Faris John V. Britti Executive Vice President and President and Chief Executive Officer Chief Financial Officer 23 years at Ocwen 3 years at Ocwen 27 years of industry experience 22 years of industry experience Ocwen: Chief Executive Officer since 2010 and Ocwen: Executive Vice
Slide 6: Who We Are and What We Do
Who We Are and What We Do Leading full-service provider of mortgage servicing, special servicing and lending with 25+ year operating history Publicly-traded (NYSE: OCN) mortgage servicer with more than $6.4 billion in market capitalization as of January 24, 2014 Lowest cost, scalable servicing platf
Slide 7: Wells Fargo Transaction Overview
Wells Fargo Transaction Overview Ocwen has executed a purchase agreement for mortgage servicing rights (“MSR”) on approximately $39 billion in total UPB from Wells Fargo The total purchase price is $2.7 billion Transaction The UPB being purchased by Ocwen includes approximately $280 million for the
Slide 8: Transaction Overview: Sources & Uses
Transaction Overview Transaction Sources & Uses Ocwen intends to raise a $2.2 billion Term Loan B that will primarily be used to refinance the Company’s existing $1.3 billion Senior Secured Term Loan, fund the purchase of the Wells Fargo Bank, N.A. assets and for general corporate purposes $700 mill
Slide 9: Pro Forma Capitalization
Pro Forma Capitalization Pro Forma Capitalization Table Adjustment for ($ in millions) acquisition/sale Transaction 9/30/2013 9/30/13 A in Q4 2013 (1) Adjustments Pro Forma Cash $357.5 ($248.6) $219.4 $328.3 Match Funded Liabilities 363.0 1,601.2 1,966.0 3,930.3 MSRs Pledged 643.6 643.6 Notes Payabl
Slide 10: Strong Collateral Protection With Low Risk Balance Sheet
Strong Collateral Protection With Low Risk Balance Sheet Investment grade quality assets significantly exceed total debt, and they largely consist of advances that are self-liquidating with duration matched funding Pro-forma collateral (1) of ~ 1.8x the term loan $5,000 Attractive collateral package
Slide 11: Earnings Guidance
Earnings Guidance Earnings Guidance ($ in millions) Q4 2013 Earnings Guidance Range Revenue $550 - $555 Net Income $101 - $106 Pre-tax Income $115 - $120 Normalized Pre-tax Income(1) $162 - $167 EBITDA(2) $310 - $315 Normalized EBITDA(1) $355 - $360 Tax Rate 11.5% - 12.5% Note: The above financial d
Slide 12: Key Investment Highlights
Key Investment Highlights Senior Secured Term Loan 11
Slide 13: Key Investment Highlights
Key Investment Highlights 1 Established Business Model with a Recurring Revenue Stream in Solid Market 2 Best-In-Class Servicer with Strong History of Loss Mitigation 3 Substantial Cash Flow Generation in Excess of Earnings 4 Highly Scalable Platform with Low Operating Cost 5 Proven Ability to Close
Slide 14: Established Business Model With a Recurring Revenue Stream
1 Established Business Model With a Recurring Revenue Stream Servicing revenues are fee-based and recurring in nature Servicing revenues are contractually obligated and a function of UPB Generally not exposed to credit risk with respect to the mortgage loans serviced Solid revenue and cash flow enab
Slide 15: Shift Towards Non-Bank Servicers
1 Shift Towards Non-Bank Servicers $9.9 trillion in residential mortgages outstanding as of September 30, 2013 Over the last couple years we have seen non-bank servicers gain share Large banks are shifting their mortgage activities to focus on their core franchise typically excluding non-prime mortg
Slide 16: Attractive Growth Opportunities
1 Attractive Growth Opportunities Track record of growing the business over an extended time Growth opportunities period Strong Pipeline of Opportunities As of September 30, 2013, pipeline of $400 billion of UPB of specifically identified opportunities that may close over next 12 to 18 months Bank D
Slide 17: Best-In-Class Servicer With Strong History of Loss Mitigation
2 Best-In-Class Servicer With Strong History of Loss Mitigation Ocwen Cures More Delinquent Loans(1) Re-Default Rate (2) Company Date Summary Ocwen’s performance ranked best among the servicers for the Moody’s Oct. 2013 performance on ~1.1 million loans which were 60+ delinquent and at the height of
Slide 18: Driving Down Delinquencies on Acquisitions
2 and Driving Down Delinquencies on Acquisitions For acquired portfolios, superior loss mitigation processes enable Ocwen to reduce delinquency rates and advances Delinquency Percentage (90+ Days) by Portfolio(1) Legacy Ocwen Saxon HomEq Litton Saxon New Chase Homeward 46% 41% 36% 31% 26% 21% 16% 1)
Slide 19: Substantial Cash Flow Generation in Excess of Earnings
3 Substantial Cash Flow Generation in Excess of Earnings Substantial Cash Flow Generation Adjusted cash flow from operations of $705 million for $295 the first 9 months of 2013(1) $266 $220 Potential for additional cash flow through MSR and servicer advance sales to Home Loan Servicing Solutions (“H
Slide 20: Highly Scalable Platform With Lowest Operating Cost
4 Highly Scalable Platform With Lowest Operating Cost Lowest operating cost for non- Cost per non-performing loan(1) performing mortgage servicing Over a decade of experience with world- $875 wide operations 70% cost Superior performance lowering advantage delinquencies provides additional cost adva
Slide 21: Proven Ability to Close and Effectively Board Acquisitions
5 Proven Ability to Close and Effectively Board Acquisitions Scalable technology allows for efficient boarding of large portfolios Approx. Days from Contract to Date Portfolio Number of loans Close and Initial Transfer(1) 3Q2009 Freddie Mac - TBW DQ Loan Subservicing 24,000 11 days 4Q2009 Undisclose
Slide 22: Proven Ability to Reduce Leverage Over Time
6 Proven Ability to Reduce Leverage Over Time The increased leverage associated with Ocwen’s acquisitions historically has been temporary in nature Term loan balances have been reduced with excess cash flows Corporate Debt/Adjusted EBITDA (1), (3) 3.5x Term Loan 2: Term Loan 1: Acquisition of Litton
Slide 23: Reduced Risk from Balance Sheet Initiatives
6 Reduced Risk from Balance Sheet Initiatives Capital Light Initiative Prime MSR Financing Initiative HLSS created to appeal to a yield oriented Ocwen identified a new financing structure to investor base and reduce the capital intensity finance prime MSRs on balance sheet (1) of Ocwen’s operations
Slide 24: Low Risk Balance Sheet / Strong Collateral Protection
7 Low Risk Balance Sheet / Strong Collateral Protection Corporate Debt/Equity 2.36x 1.99x Peer Avg: 2.18x 1.26x 0.82x Ocwen (PF Actual) Ocwen (PF Adjusted) (1) Peer 1 Peer 2 Corporate Debt /LTM EBITDA (2) 3.60x 3.30x Peer Avg: 3.46x 2.05x (1) Ocwen (PF Actual) Ocwen (PF Adjusted) Peer 1 Peer 2 Sourc
Slide 25: Low Risk Balance Sheet / Strong Collateral Protection (Continued)
7 Low Risk Balance Sheet / Strong Collateral Protection (Continued) Investment grade quality assets significantly exceed total debt, and they largely consist of advances that are self-liquidating with duration matched funding Pro-forma collateral (1) of ~ 1.8x the term loan $5,000 Attractive collate
Slide 26: Summary Terms and Timeline
Summary Terms and Timeline Senior Secured Term Loan 25
Slide 27: Summary Terms and Conditions
Summary Terms and Conditions Summary Terms and Conditions Borrowers: Ocwen Loan Servicing, LLC and Ocwen Mortgage Servicing, Inc. (collectively “Co-Borrowers”) $2.2 billion Senior Secured Term Loan including (i) a $1.5 billion Term Loan B and (ii) a fungible, $700 million delayed Facilities: funding
Slide 28: Transaction Timetable
Transaction Timetable January 2014 February 2014 March 2014 S M T W T F S S M T W T F S S M T W T F S 1 2 3 4 1 1 5 6 7 8 9 10 11 2 3 4 5 6 7 8 2 3 4 5 6 7 8 12 13 14 15 16 17 18 9 10 11 12 13 14 15 9 10 11 12 13 14 15 19 20 21 22 23 24 25 16 17 18 19 20 21 22 16 17 18 19 20 21 22 26 27 28 29 30 31
Slide 29: Questions and Answers
Questions and Answers Senior Secured Term Loan 28
Slide 30: Appendix
Appendix Senior Secured Term Loan 29
Slide 31: Ocwen Business Overview
Ocwen Business Overview Senior Secured Term Loan 30
Slide 32: Continued Execution of Business Plan
Continued Execution of Business Plan Ocwen has executed its capital light strategy ensuring more flexible funding and higher returns Grow the servicing portfolio with modest Has resulted in increased cash generation and And driven superior returns on invested capital to additional equity contributio
Slide 33: Conservative Pro Forma Leverage Profile
Conservative Pro Forma Leverage Profile Corporate Debt/Adjusted EBITDA (1), (3) 2.5x 2.1x 2.0x 2.0x 1.6x 1.5x 1.1x 1.1x 1.0x 1.0x 0.9x 0.8x 0.7x 0.5x 0.0x 2005A 2006A 2007A 2008A 2009A 2010A 2011A 2012A 9/30/13 PF Corporate Debt/Equity (2), (3) 1.3x 1.0x 0.8x 0.8x 0.5x 0.4x 0.4x 0.4x 0.3x 0.2x 0.3x
Slide 34: Advances are High Quality Assets
Advances are High Quality Assets OCN Advance Collateral Coverage Advances self-liquidate at par Advances have the right to be repaid at “top-of-the- $3.4 Billion ~1.1% waterfall,” i.e. they are paid before any other Servicer Advance Advances Rate payments to the trust $319.3 Billion (Property Value)
Slide 35: Low Risk Balance Sheet / Strong Collateral Protection
Low Risk Balance Sheet / Strong Collateral Protection $1.7 billion of equity supported by high quality assets Highly rated assets (as reported 9/30/13) ($ in millions) The balance sheet consists of high quality/low risk assets Assets 9/30/2013 % of Total consisting primarily of advance receivables I
Slide 36: Historical Financials
Historical Financials Quarterly Revenue Adjusted EBITDA (1) ($ in millions) ($ in millions) $600 $546 $300 $450 $405 $225 $199 $165 $174 $300 $236 $150 $118 $211 $157 $66 $66 $113 $106 $75 $52 $55 $150 $73 $76 $38 $0 $0 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Slide 37: LTM and Pro-Forma Adjusted EBITDA
LTM and Pro-Forma Adjusted EBITDA LTM EBITDA Build-up ($ in millions) Three Months Ended: 12/31/2012 3/31/2013 6/30/2013 9/30/2013 Consolidated net income $65 $43 $76 $68 (+) income tax $11 $6 $11 $9 (+) interest expense $60 $93 $100 $110 (+) depreciation and amortization $21 $52 $76 $86 EBITDA (1)
Slide 38: Reconciliation of EBITDA and Adjusted EBITDA
Reconciliation of EBITDA and Adjusted EBITDA Reconciliation of EBITDA and Adjusted EBITDA ($ in millions) Q4 2013 EBITDA(1) Net income (midpoint of range) $103.5 (+) income tax (midpoint of range) $14.1 Pre-tax income $117.6 (+) Interest expense $109.5 (+) Amortization $85.3 EBITDA $312.5 FY 2013 Ad
Slide 39: Reconciliation of Normalized Pre-Tax Income and EBITDA
Reconciliation of Normalized Pre-Tax Income and EBITDA Reconciliation of Pre-Tax Income and Normalized EBITDA ($ in millions) Q4 2013 Normalized EBITDA(1) Midpoint of Pre-tax Income range $117.6 Normalization Adjustments(2) Servicing and subservicing fees(3) ($0.5) Compensation and benefits $26.7 Se
Slide 40: Consolidated Statement of Cash Flows
Consolidated Statement of Cash Flows Adjusted Cash Flow from Operations Calculation Adjusted Cash Flow from Operations Three Months Ended ($ in thousands) 2000A 2005A 2010A 12/31/12 3/31/2013 6/30/2013 9/30/2013 Net Cash Provided by Operating Activities (A) $5,614 ($328,174) $727,544 $381,703 $401,9
Ocwen Financial — Debt Investor Presentation (January 2014) on 6ix