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Item 1.01
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Entry
into a Material Definitive Agreement.
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On
December 5, 2015, Ocwen Financial Corporation (“OFC”) announced the settlement of the previously announced debt-for-debt
exchange offer by its subsidiary Ocwen Loan Servicing, LLC (“OLS” or the “Issuer”) pursuant to which OLS
issued $346.9 million aggregate principal amount of 8.375% Senior Secured Second Lien Notes due 2022 (the “Second Lien Notes”)
in exchange for $346.9 million aggregate principal amount (or 99.1%) of OFC’s 6.625% Senior Notes due 2019 (the “Existing
Notes”) that had been tendered in the exchange offer. Ocwen also announced that concurrently with the closing of the exchange
offer, OLS entered into a new Senior Secured Term Loan Facility (the “SSTL”), with an initial interest rate of 6.0%.
The SSTL provides for a $335 million term loan credit facility with a maturity date of December 5, 2020, and refinanced the prior
senior secured term loan that had a maturity date of February 15, 2018 and an interest rate of 5.5% (the “Prior SSTL”).
The
Second Lien Notes and the SSTL are jointly and severally guaranteed by OFC, Ocwen Mortgage Servicing, Inc., Homeward Residential
Holdings, Inc., Homeward Residential, Inc. and Automotive Capital Services, Inc. (collectively, the “Guarantors”).
The Second Lien Notes and the related guarantees will be unsubordinated obligations of OLS and the Guarantors, respectively, and
will be secured (subject in each case to certain exceptions and permitted liens) by a second-priority lien on the assets of OLS
and the Guarantors that secure the SSTL (the “Collateral”). The lien on the Collateral securing the New Second Lien
Notes will be junior to the first priority lien securing the SSTL.
The
exchange offer was made, and the Second Lien Notes were issued, only to holders of the Existing Notes who completed and returned
an eligibility form confirming that they are both (x) either (i) “qualified institutional buyers” within the meaning
of Rule 144A under the Securities Act or (ii) not “U.S. persons” and are outside of the United States within the meaning
of Regulation S under the Securities Act, and (y) “accredited investors” within the meaning of Rule 501 under the
Securities Act. Following the issuance of the Second Lien Notes and the settlement of the exchange offer, the Existing Notes that
were tendered in the exchange offer were cancelled.
The
Second Lien Notes have not been registered under the Securities Act or the securities laws of any other jurisdiction, and unless
so registered, the Second Lien Notes may not be offered or sold in the United States to, or for the account or benefit of, any
United States person except pursuant to an exemption from the registration requirements of the Securities Act and other applicable
securities laws.
Set
forth below is a brief description of (i) the Indenture governing the Second Lien Notes, (ii) the Second Lien Notes Pledge and
Security Agreement, (iii) the Junior Priority Intercreditor Agreement and (iv) the SSTL, each of which is filed as an exhibit
to this Current Report. These descriptions are summaries only, are not complete and are qualified in their entirety by reference
to the full and complete terms contained in the Indenture, Second Lien Notes Security Agreement, the Junior Priority Intercreditor
Agreement and the SSTL, copies of which are attached as Exhibits 4.1, 10.1, 10.2, 10.3 and 10.4, respectively, to this Current
Report on Form 8-K and are incorporated herein by reference.
Second
Lien Notes Indenture
The
Second Lien Notes were issued pursuant to an Indenture, dated as of December 5, 2018 (the “Indenture”), among OLS,
the Guarantors and Wilmington Trust, National Association, as trustee (the “Trustee”) and as collateral trustee (the
“Collateral Trustee”). A copy of the Indenture is filed as Exhibit 4.1 to this Current Report on Form 8-K and is incorporated
herein by reference.
Principal;
Maturity and Interest
. The Second Lien Notes were initially issued in an aggregate principal amount of $346.9 million. The
Second Lien Notes will mature on November 15, 2022. Interest on the Second Lien Notes will accrue at the rate of 8.375% per annum
and will be payable semiannually in arrears in cash on each May 15 and November 15, commencing on May 15, 2017, to the persons
who are registered holders at the close of business on the May 1
st
and November 1
st
immediately preceding
the applicable interest payment date.
Optional
Redemption.
At any time prior to November 15, 2018, the Issuer may on any one or more occasions redeem all or a part of the
Second Lien Notes, upon not less than 30 nor more than 60 days’ notice, at a redemption price equal to 100.0% of the principal
amount of the Second Lien Notes redeemed, plus the Applicable Premium (as defined in the Indenture), plus accrued and unpaid interest
to the applicable date of redemption.
On
or after November 15, 2018, the Issuer may on any one or more occasions redeem all or a part of the Second Lien Notes, upon not
less than 30 nor more than 60 days’ notice, at the redemption prices (expressed as percentages of principal amount) set
forth below, plus accrued and unpaid interest to the applicable date of redemption, if redeemed during the twelve-month period
beginning on November 15th of the years indicated below:
Year
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Percentage
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2018
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106.281
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%
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2019
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104.188
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%
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2020
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102.094
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%
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2021 and thereafter
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100.000
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%
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At
any time, or from time to time, on or prior to November 15, 2018, the Issuer may, at its option, use the net cash proceeds of
one or more Equity Offerings (as defined in the Indenture) to redeem up to 35.0% of the principal amount of all Second Lien Notes
issued at a redemption price equal to 108.375% of the principal amount of the Second Lien Notes redeemed plus accrued and unpaid
interest to the date of redemption, provided that: (i) at least 65.0% of the principal amount of all Second Lien Notes issued
under the Indenture (including any additional Second Lien Notes) remains outstanding immediately after any such redemption; and
(ii) the Issuer makes such redemption not more than 120 days after the consummation of any such Equity Offering.
Change
of Control
. Upon the occurrence of a Change of Control (as defined in the Indenture), the Issuer is required to make an offer
to the holders of the Second Lien Notes to repurchase all or a portion of such holder’s Second Lien Notes at a purchase
price equal to 101.0% of the principal amount of the Second Lien Notes purchased plus accrued and unpaid interest to the date
of purchase.
Covenants.
The Indenture contains certain covenants, including, but not limited to, limitations and restrictions on OFC’s ability
and the ability of its restricted subsidiaries (including the Issuer) to (i) incur additional debt or issue preferred stock; (ii)
pay dividends or make distributions on or purchase equity interests of OFC; (iii) repurchase or redeem subordinated debt prior
to maturity; (iv) make investments or other restricted payments; (v) create liens on assets to secure debt of the Issuer or any
Guarantor; (vi) sell or transfer assets; (vii) enter into transactions with affiliates; and (viii) enter into mergers, consolidations,
or sales of all or substantially all of the assets of OFC and its restricted subsidiaries, taken as a whole. As of the date of
the Indenture, all of OFC’s subsidiaries are restricted subsidiaries. The restrictive covenants set forth in the Indenture
are subject to important exceptions and qualifications. Many of the restrictive covenants will be suspended if (i) the Second
Lien Notes achieve an investment grade rating from both Moody’s Investors Service, Inc. (“Moody’s”) and
Standard & Poor’s Ratings Services (“S&P”) and (ii) no default or event of default has occurred and
is continuing under the Indenture. Covenants that are suspended as a result of achieving these ratings will again apply if one
or both of Moody’s and S&P withdraws its investment grade rating or downgrades the rating assigned to the Second Lien
Notes below an investment grade rating.
Events
of Default.
The Indenture includes customary Events of Defaults including: the failure to pay interest on the Second Lien
Notes when due after a 30 day grace period; failure to pay the principal and premium, if any, on any Second Lien Notes, when due;
a default in the observance or performance of any other covenant or agreement contained in the Indenture and such default continues
for a period of 60 days (or, in the case of Section 4.03 “Reports to Holders” of the Indenture, 120 days) after written
notice; a payment default (after giving effect to any applicable grace periods) or acceleration of any indebtedness aggregating
$75.0 million or more at any time; certain judgment defaults in an aggregate amount in excess of $75.0 million with respect to
OFC or any significant subsidiary; certain events of bankruptcy or insolvency affecting OFC or any significant subsidiary; the
guarantee of the Second Lien Notes by OFC or any Subsidiary Guarantor that is a significant subsidiary ceasing to be in full force
and effect; or with respect to a material portion of the Collateral, any of the Security Documents (as defined in the Indenture)
or the liens created thereby ceases to be in full force and effect, subject tot a 45 day cure period.
Second
Lien Notes Pledge and Security Agreement.
Pursuant
to that certain Second Lien Notes Pledge and Security Agreement, dated as of December 5, 2016, among OLS and the Guarantors and
the Collateral Trustee (the “Second Lien Notes Security Agreement”), the Second Lien Notes are secured by second priority
liens granted by OLS and the Guarantors (collectively, the “Grantors”) on the assets and properties of the Grantors
(whether now owned or hereinafter arising or acquired) that secure the first priority obligations of the Grantors under the SSTL,
excluding any mortgage servicing rights related to Fannie Mae and Freddie Mac mortgages with respect to which a new acknowledgment
agreement with Fannie Mae and Freddie Mac acknowledging such second priority liens has not been obtained (collectively, the “Collateral”).
The Grantors are required to use commercially reasonable efforts to obtain such new acknowledgment agreements. The Collateral
will be subject to certain permitted liens set forth under the Indenture and the Second Lien Notes Security Agreement and will
not include any assets that is not collateral for the first priority obligations under the SSTL.
Intercreditor
Agreement
To
establish the second priority status of the liens securing the Second Lien Notes relative to the liens securing the SSTL, the
Grantors , Barclay Bank PLC, as representative for the lenders under SSTL (the “First Priority Representative”), and
the Collateral Trustee, as representative for the holders of the Second Lien Notes, entered into that certain Junior Priority
Intercreditor Agreement, dated as of December 5, 2016 (the “Intercreditor Agreement”). Under the terms of the Intercreditor
Agreement, any proceeds received upon a realization of the Collateral will be applied first to the payment of the First Priority
Obligations (as defined in Intercreditor Agreement) until the discharge in full of the First Priority Obligations has occurred.
Until the discharge in full of the First Priority Obligations, if the holders of the Second Lien Notes and any other Second Priority
Obligations (as defined in the Intercreditor Agreement) are granted or receive cash payments in respect of liens on the Collateral,
such cash payments must be turned over to the First Priority Representative. In addition, pursuant to the terms of the Intercreditor
Agreement, prior to the discharge in full of the First Priority Obligations, (i) the First Priority Representative will determine
the time and method by which the liens on the Collateral will be enforced after the occurrence and during the continuance of an
event of default and (ii) the Collateral Trustee will not be permitted to enforce the security interests, liens and other rights
related to the Collateral on behalf of the holders of the Second Lien Notes even if an event of default has occurred and the Second
Lien Notes have been accelerated, subject to each case to certain exceptions.
Amended
and Restated Senior Secured Term Loan
On
December 5, 2016, OLS entered into an Amended and Restated Senior Secured Term Loan Facility Agreement by and among OLS, as borrower,
the Guarantors, the financial institutions party thereto as lenders, Barclays Bank PLC (“Barclays”), as Administrative
Agent, Collateral Agent and Sole Syndication Agent, Barclays, JPMorgan Chase Bank, N.A. (“JPM”), Nomura Securities
International, Inc. (“Nomura”) and Credit Suisse Securities (USA) LLC (“CS”), as Joint Lead Arrangers
and Joint Bookrunners, and JPM, Nomura and CS, as Co-Documentation Agents. The SSTL amended and restated OLS’s Prior SSTL,
which it had originally entered into in February 2013. Each Guarantor has unconditionally guaranteed all obligations of OLS under
the SSTL.
The
SSTL provides for a $335 million senior secured term loan with a maturity date of December 5, 2020. Under the terms of the SSTL,
OLS may also request an increase to the loan amount of up to $100 million, with additional increases subject to certain limitations.
The proceeds of the term loan made under the SSTL were used to prepay in full all of OLS’ obligations under the Prior SSTL
and to pay fees and expenses incurred in connection with the transactions described herein.
Loans
under the SSTL will bear interest at the one, two, three or six month Eurodollar Rate or the Base Rate (as defined in the SSTL),
at OLS’ option, plus a margin of 5.00% per annum for Eurodollar Rate Loans or 4.00% per annum for Base Rate Loans. In each
case of the foregoing, the Eurodollar Rate shall not be less than 1.00% per annum and the Base Rate shall not be less than 2.00%
per annum. Principal payments under the SSTL will be due and owing in equal quarterly payments of $4,187,500 commencing on March
31, 2017.
The
SSTL contains covenants substantially similar to those in the Prior SSTL, including covenants limiting liens, debt, distributions,
investments, asset sales, prepayment and/or modification of junior debt and mergers. Most of these restrictions are subject to
minimum thresholds and exceptions. The SSTL also contains a financial covenant that requires OFC to maintain a loan-to-value ratio
as of the last day of each fiscal quarter of not less than 40%.
In
addition, the SSTL has events of default substantially similar to the Prior SSTL, including (subject to certain materiality thresholds
and grace periods) payment default, failure to comply with covenants, material inaccuracy of representation or warranty, bankruptcy
or insolvency proceedings, material judgments, change of control and cross-default to other debt agreements.