Onity Group Inc. · NYSE:ONIT
Onity — Ocwen Financial — Debt Investor Presentation (July 2011)
41 slides from Onity's debt investor presentation, Jul 19, 2011
Slide 1: Lenders' Presentation – Public
Lenders’ Presentation – Public July 19, 2011 © 2011 Ocwen Financial Corporation. All rights reserved.
Slide 2: Forward-looking statements and GAAP reconciliation
Forward - looking statements and GAAP reconciliation Forward-looking statements should not be read as a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by which, such performance or results will be achieved or whether such performance
Slide 3: Agenda
Agenda Introduction Barclays Capital Ocwen Business Overview Ocwen – William Erbey Litton Acquisition Ocwen – Ronald Faris Key Investment Highlights Ocwen – Ronald Faris Financial Overview Ocwen – John Van Vlack Questions and Answers Ocwen Senior Secured Term Loan Proprietary & Confidential
Slide 4: Introduction
Introduction Senior Secured Term Loan Proprietary & Confidential
Slide 5: Presenters
Presenters William C. Erbey Chairman 23 years at Ocwen 38 years of industry experience ■ Ocwen: Chairman of Board since 1996, Chief Executive Officer from 1988 to 2010 and President from 1988 to 1998 ■ 1983 to 1995: Managing General Partner of The Oxford Financial Group, a private investment partner
Slide 6: Ocwen Business Overview
Ocwen Business Overview Senior Secured Term Loan Proprietary & Confidential
Slide 7: Who we are and what we do
Who we are and what we do ■ Leading provider of residential and commercial mortgage loan servicing and special servicing ♦ Publicly-traded (NYSE: OCN) pure play mortgage servicer with $1.3 billion in market capitalization ♦ 20+ years of innovation in loss mitigation ♦ #1 servicer in third-party stud
Slide 8: Mortgage servicing overview
Mortgage servicing overview ■ Residential mortgage loan servicing primarily involves: ♦ Collection and transfer of mortgage payments from borrowers ♦ Cash management and escrow account responsibilities ♦ Mitigation of losses through loan modifications, short sales and other options ♦ Administration
Slide 9: Growing demand for high-touch servicers in $11 trillion industry
Growing demand for high-touch servicers in $11 trillion industry ■ $10.5 trillion in residential mortgages outstanding as of December 31, 2010 ♦ $1.4 trillion of delinquent loans ■ Every loan needs a servicer ♦ Top four banks service 54% of total loans, but focused on prime “low touch” loans ♦ Growi
Slide 10: Spectrum of Ocwen market opportunities
Spectrum of Ocwen market opportunities Factors Affecting Ability to Win New Business: Cost Quality Market Coverage þ Distinct Competitive Advantage þ Distinct Competitive Advantage Expanding into New Servicing Markets Senior Secured Term Loan Proprietary & Confidential
Slide 11: Litton Acquisition
Litton Acquisition Senior Secured Term Loan Proprietary & Confidential
Slide 12: Litton acquisition overview
Litton acquisition overview Transaction Overview ■ On June 5, 2011, Ocwen signed a definitive agreement to acquire all of the outstanding partnership interests of Litton and certain interest-only servicing strips from Goldman Sachs, & Co. (the “Seller”) ♦ The Seller will retain certain state and fed
Slide 13: Investment rationale
Investment rationale ■ Further expands Ocwen’s servicing portfolio on a pro forma basis to $112 billion in UPB as of March 31, 2011 Top 10 Subprime Servicers – Current Rank Servicer UPB ($bn) 1 Chase Home Finance $88 2 Bank of America (Countrywide) 81 3 American Home Mortgage Servicing 76 4 Ocwen Fi
Slide 14: Acquired servicing portfolio
Acquired servicing portfolio Generally similar portfolio characteristics… ($ in millions, except loan count data) Delinquency Residential % 30+ Non- % 90+ Non- UPB Loan Count Average FICO Average LTV performing performing Net Advances Ocwen $70,543 462,192 603 86.2% 37.8% 27.4% $1,815 Litton 41,246
Slide 15: Key Investment Highlights
Key Investment Highlights Senior Secured Term Loan Proprietary & Confidential
Slide 16: Summary of investment highlights
Summary of investment highlights 1 Stable business model with recurring revenue streams and attractive growth opportunities 2 Superior servicing and loss mitigation practices effective at driving down delinquencies and advances 3 Substantial cash flow generation 4 Low risk balance sheet and strong c
Slide 17: Stable business model with recurring revenue streams…
1 Stable business model with recurring revenue streams… ■ Revenues are fee-based and recurring in nature ♦ Revenues are contractually obligated and are a function of UPB ■ Not exposed to credit risk with respect to the mortgage loans it services ■ Attractive returns on acquisitions Servicing busines
Slide 18: …and attractive growth opportunities
1 …and attractive growth opportunities Ocwen began purchasing non-performing loans in 1992 and has serviced subprime loans since 1996 Track record of growing the business over an extended time period ($ in billions, UPB at period end) As Reported 2001 21.9 2005 42.78 2010 73.89 3/31/11 PF (1) 112.2
Slide 19: Superior servicing and loss mitigation practices…
2 Superior servicing and loss mitigation practices… Delinquency Percentage (90+ Days) by Portfolio (1) Subprime Servicer Processing Speeds (2) FCL / REO processing speeds classification Fast processors / liquidators Middle of the pack Slow processors / liquidators Ocwen JPM (EMC, WAMU) Countrywide O
Slide 20: …Effective at driving down delinquencies and advances
2 …Effective at driving down delinquencies and advances Advances as a % of UPB Legacy Ocwen (1) HomEq Saxon 10-Apr 2.70% 7.90% 10-May 2.60% 7.40% 10-Jun 2.60% 7.20% 10-Jul 2.60% 7.10% 10-Aug 2.60% 6.90% 10-Sep 2.60% 6.70% 4.90% 10-Oct 2.60% 6.50% 4.70% 10-Nov 2.60% 6.30% 4.60% 10-Dec 2.60% 5.90% 4.4
Slide 21: Substantial cash flow generation
3 Substantial cash flow generation ■ Without any new UPB, the existing portfolio, including Litton, is expected to generate substantial free cash flow ♦ Sufficient to prepay the $575 million Term Loan in the near-term, if needed ■ Projected cash generation of approximately $285 million over the next
Slide 22: Low risk balance sheet
4 Low risk balance sheet $930 million of equity supported by high quality assets with limited recourse debt Highly rated assets (as reported 3/31/11) ($ in millions) Assets (1) 3/31/11 % of Total Investment Grade Quality Advances $1,815 73% Cash 129 5% Deferred Tax Assets 138 6% Total Investment Gra
Slide 23: Strong collateral protection
4 Strong collateral protection Investment grade quality assets significantly exceed total debt, and they largely consist of advances that are self-liquidating with duration matched funding Selected collateral is 2.4x the term loan (1) MSRs DSF Advances Cash Term Loan Collateral 320 242 790 >=BBB Col
Slide 24: Highly scalable platform with lowest operating cost in the industry
5 Highly scalable platform with lowest operating cost in the industry ■ Can quickly scale its servicing platform to efficiently board acquired portfolios with only modest additions to infrastructure ■ Lowest operating cost in the subprime mortgage servicing industry ♦ Global locations where per empl
Slide 25: Financial Overview
Financial Overview Senior Secured Term Loan Proprietary & Confidential
Slide 26: Transaction sources and uses
Transaction sources and uses Sources ($ in millions) New Advance Facility $2,103 Senior Secured Term Loan 575 Cash on Balance Sheet 113 Total Sources $2,791 Uses Litton Purchase Price (1) $264 Repay Existing Litton Advance Facility 2,440 Transaction Fees and Expenses (2) 87 Total Uses $2,791 Source:
Slide 27: Pro Forma Capitalization
Pro Forma Capitalization Pro Forma Capitalization Table ($ in millions) Actual Pro Forma 3/31/11 Adjustments 3/31/11 Cash (1) $129 ($87) (2) $42 Match Funded Liabilities $1,289 $2,155 (3) $3,444 Line of Credit 51 - 51 Secured Borrowings - Owed to Securitization Investors 61 - 61 Total Funding Debt $
Slide 28: Historical financials
Historical financials Quarterly Revenue Q1 '09 75.3 Q2 '09 63.044 Q3 '09 63.344 Q4 '09 72.748 Q1 '10 75.586 Q2 '10 75.953 Q3 '10 95.569 Q4 '10 113.273 Q1 '11 111.006 Adjusted EBITDA Q1 '09 29.6 Q2 '09 27.52968844 Q3 '09 29.94946344 Q4 '09 33.998574 Q1 '10 38.019376 Q2 '10 35.43374 Q3 '10 52.15392483
Slide 29: "Run-Rate" 3/31/11 Adjusted EBITDA
“Run-Rate” 3/31/11 Adjusted EBITDA (1) 3/31/11 LTM Adjusted EBITDA – As Reported 0.0 202.433686 202.433686 HomEq and Saxon Normalization (2) 202.433686 42.05953832 42.05953832 LTM Adjusted EBITDA – Ocwen Standalone 0 244.4932243 244.4932243 Litton LTM Adjusted EBITDA – Covenant 244.4932243 33.022823
Slide 30: Pro forma credit statistics
Pro forma credit statistics ■ The increased leverage associated with the acquisition of Litton will be temporary in nature ♦ The term loan, prepayable at par, will be reduced with excess cash flows ♦ Ocwen intends to use a conservative mix of debt and equity to fund further acquisitions Corporate De
Slide 31: HLSS Transaction Update
HLSS Transaction Update HLSS Overview ■ In February 2011, Ocwen announced it was pursuing a strategic opportunity with a newly formed entity called HLSS that could significantly reduce capital needs ♦ HLSS will be structured in a tax efficient manner as a Passive Foreign Investment Company (“PFIC”),
Slide 32: Key takeaways
Key takeaways Stable business model with recurring revenue streams Superior servicing and loss mitigation capabilities Substantial cash flow generation Strong collateral coverage and conservative balance sheet Industry leading cost structure Positioned for growth in core business Seasoned management
Slide 33: Summary Terms and Timeline
Summary Terms and Timeline Senior Secured Term Loan Proprietary & Confidential
Slide 34: Transaction terms
Transaction terms Summary Terms and Conditions Issuer: Ocwen Financial Corporation (“Ocwen” or the “Company”) Issue: $575 million Term Loan (the “Term Loan”) Guarantor: All existing and subsequently acquired or organized direct or indirect wholly-owned restricted subsidiaries of the Borrower (subjec
Slide 35: Transaction timetable
Transaction timetable Date Event July 19 th ■ Bank Meeting August 5 th ■ Lender Commitments Due August 8 th ■ Loan Documentation Posted to Intralinks for Investor Review August 12 th ■ Comments Due on Loan Documentation September 1 st ■ Close and Fund Credit Facilities Senior Secured Term Loan Propr
Slide 36: Questions and Answers
Questions and Answers Senior Secured Term Loan Proprietary & Confidential
Slide 37: Appendix
Appendix Senior Secured Term Loan Proprietary & Confidential
Slide 38: What is a servicer advance?
What is a servicer advance? ■ When there exists a deficiency in monthly collections due to delinquent borrowers, servicers will “advance” payments to the RMBS trust or third party loan owners. These payments include: ♦ Principal and interest ♦ Taxes and insurance ♦ Property protection and foreclosur
Slide 39: What are deferred servicing fees and mortgage servicing rights?
What are deferred servicing fees and mortgage servicing rights? Deferred servicing fees ■ Deferred servicing fees are contractually-obligated fees earned by and owed to the servicer but not yet collected while a borrower is delinquent ♦ Deferred servicing fees have the highest priority in the waterf
Slide 40: Collateral Coverage
Collateral Coverage ■ Ocwen currently has $1,352 million of collateral giving rise to a 2.4x collateral coverage ratio ■ Taking a more conservative view on the collateral, total “investment grade quality” collateral is $657mm, which still exceeds the term loan ■ The investment grade quality threshol
Slide 41: Collateral Coverage
Collateral Coverage Senior Secured Term Loan Proprietary & Confidential
Ocwen Financial — Debt Investor Presentation (July 2011) on 6ix