NEW YORK, Feb. 20, 2015 /PRNewswire/ -- BlueMountain
Capital Management, LLC, the investment manager of funds that hold
certain Series 2012-T2 and Series 2013-T3 Notes issued in
connection with the HLSS Servicer Advance Receivables Trust (the
"HSART Trust"), today announced that it has sent the letter below,
which provides notice of additional events of default, to the
trustee of the HSART Trust.
Disclosures
This press release is being issued by BlueMountain Capital
Management, LLC ("BlueMountain"), an SEC-registered investment
adviser. As of February 20, 2015,
funds and accounts managed by BlueMountain and/or its affiliates
(i) hold certain notes issued in connection with the HLSS Servicer
Advance Receivables Trust, (ii) hold certificates of certain
residential mortgage-backed securities (the "RMBS Certificates")
collateralized by loans serviced by Ocwen Loan Servicing, LLC,
(iii) hold a short position in, and put options with respect to,
the common stock of Ocwen Financial Corporation (NYSE: OCN)
("Ocwen") and (iv) hold a short position in, and put options with
respect to, the common stock of Home Loan Servicing Solutions, Ltd.
(NASDAQ: HLSS) ("HLSS"). BlueMountain also has directed the
trustees of certain of the RMBS Certificates to investigate and/or
take action with respect to Ocwen Loan Servicing, LLC.
Without making any public or other disclosure except as may be
required by applicable law, funds and accounts managed by
BlueMountain and/or its affiliates may, at any time, buy and sell
securities and instruments issued and/or managed by Ocwen, HLSS and
other companies, including, without limitation, increasing and/or
covering short positions in Ocwen and/or HLSS and/or changing to
long positions in Ocwen and/or HLSS, based upon such factors as
BlueMountain may, in its sole and absolute discretion, deem
relevant.
The information set forth herein does not constitute a
recommendation or solicitation to buy or sell any security. The
information set forth herein represents the opinion of BlueMountain
as of the date hereof and the trustee's response to the letter is
unknown. This press release contains certain "forward-looking
statements," which may be identified by the use of such words as
"believe," "expect," "anticipate," "should," "planned,"
"estimated," "potential," "outlook," "forecast," "plan" and other
similar terms. All forward-looking statements are subject to
various factors, any or all of which could cause actual events to
differ materially from projected events. The information set forth
herein is based upon information reasonably available to
BlueMountain and obtained from sources BlueMountain believes to be
reliable; however, such sources cannot be guaranteed as to their
accuracy or completeness. BlueMountain makes no representation or
warranty, express or implied, as to the accuracy or completeness of
the information set forth herein and undertakes no duty to update
its contents.
About BlueMountain Capital Management, LLC
BlueMountain Capital Management, LLC ("BlueMountain") is an
absolute return manager with approximately $20 billion in assets under management.
BlueMountain and its affiliates have offices in New York, London and Tokyo. More information can be found at
www.bluemountaincapital.com.
Letter
Patterson Belknap Webb &
Tyler LLP
1133 Avenue of the Americas
New York, NY 10036-6710
February 20,
2015
|
|
|
By Federal Express
& First-Class Mail Postage Prepaid
URGENT MATERIAL
ENCLOSED
|
HLSS Holdings,
LLC
as Administrator
and as Servicer
(on and after the
MSR Transfer Date)
2002 Summit
Boulevard, Sixth Floor
Atlanta, GA
30319
Attention:
General Counsel
|
Ocwen Loan Servicing,
LLC
as a Subservicer
and as Servicer (prior to the MSR Transfer Date)
1661 Worthington
Road, Suite 100
West Palm Beach, FL
33409
Attention: Corporate
Secretary
|
HLSS Servicer Advance
Receivables Trust
as
Issuer
c/o Wilmington Trust
Company
as Owner
Trustee
Rodney Square
North
1100 North Market
Street
Wilmington, DE
19890
|
Deutsche Bank
National Trust Company
as Indenture
Trustee, Calculation Agent
Paying Agent and
Securities Intermediary
1761 East St. Andrew
Place
Santa Ana, CA
92705
Attention:
Trust Administration – OC10S2
|
Michael
Lubin
Senior Vice President
and General Counsel
Home Loan Servicing
Solutions, Ltd.
2002 Summit Blvd.,
Sixth Floor
Atlanta, GA
30319
|
Ronald
Faris
President and Chief
Executive Officer
Ocwen Loan Servicing,
LLC
1661 Worthington
Road, Suite 100
West Palm Beach, FL
33409
|
Richard
Delgado
Senior Vice President
and Treasurer
Home Loan Servicing
Solutions, Ltd.
as sole member of
HLSS Holdings, LLC
2002 Summit Blvd.,
Sixth Floor
Atlanta, GA
30319
|
Timothy M.
Hayes
Executive Vice
President
Ocwen Loan Servicing,
LLC
1661 Worthington
Road, Suite 100
West Palm Beach, FL
33409
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Re: HLSS Servicer Advance Receivables
Trust
Supplemental Notice of Default
Supplemental Notice of Event of Default
Supplemental Notice of Facility Early Amortiation Event
Ladies and Gentlemen:
We write on behalf of our client BlueMountain Capital
Management, LLC, as investment manager to BlueMountain Montenvers
Master Fund SCA SICAV-SIF, BlueMountain Guadalupe Peak Fund L.P.,
and Blue Mountain Credit Alternatives Master Fund L.P.
(collectively, "BlueMountain"), which own certain Series 2012-T2
and Series 2013-T3 Notes issued in connection with the HLSS
Servicer Advance Receivables Trust (the "HSART Trust"). We
write in reference to the Sixth Amended and Restated Indenture,
dated as of January 17, 2014,
including all Schedules and Exhibits thereto (the "Indenture"), by
and among the HSART Trust, as Issuer, Deutsche Bank National Trust
Company ("DBNT"), as Indenture Trustee, Calculation Agent, Paying
Agent and Securities Intermediary, HLSS Holdings, LLC ("HLSS"), as
Administrator and as Servicer (on and after the MSR Transfer Date),
Ocwen Loan Servicing, LLC ("Ocwen"), as a Subservicer and as
Servicer (prior to the MSR Transfer Date), Barclays Bank PLC, as
Administrative Agent, Wells Fargo Securities, LLC, as
Administrative Agent, and Credit Suisse AG, New York Branch, as Administrative Agent, and
all agreements referenced therein, including without limitation all
the Designated Servicing Agreements and Transaction
Documents. Unless otherwise specified, capitalized terms used
but not defined in this letter have the meanings ascribed to them
in the Indenture.
We write to supplement the notice of Events of Default that
BlueMountain served on January 23,
2015 (the "January 23 Letter")
with two subsequent occurrences that constitute incremental Events
of Default under the Indenture. Specifically, the recent
downgrades of Ocwen's servicer rating by Moody's Investors Service,
Inc. ("Moody's") and Fitch Ratings, Inc. ("Fitch") automatically
gave rise to defaults and termination events in agreements
governing Ocwen's mortgage servicing rights that collateralize the
obligations of the HSART Trust to the Noteholders. Those
defaults and termination events, in turn, resulted in Events of
Default under the Indenture.[1] The increased risk of loss
stemming from the occurrence of these Events of Default provides
additional grounds to implement the bargained-for contractual
remedy of an increase in the Note Interest Rate by 3%.
The two Events of Default discussed in this letter are
independent of, yet also reinforce, the Events of Default recited
in the January 23 Letter. The
January 23 Letter asked the Indenture
Trustee to enforce the Noteholders' contractual remedy to address
the precise conduct by Ocwen that HLSS and Ocwen acknowledged in
the offering memorandum for the HSART Trust posed a material risk
of loss to the Noteholders. Ocwen's admitted misconduct has
caused a succession of materially negative outcomes (e.g.,
governmental investigations, the appointment of monitors and
third-party auditors, ratings downgrades) that entitle the
Noteholders to the relief sought in the prior and instant
notices. The previously-noticed Events of Default remain
valid, and no determination has yet been made regarding their
merits by the Indenture Trustee or any Court. However,
because both notices are predicated on irrefutable facts in the
public domain and the plain reading of the governing agreements, we
expect the Indenture Trustee to render a determination in the near
term.
The January 23
Letter
The January 23 Letter provided
notice of Events of Default pursuant to Sections 8.1(d), 8.1(g),
and 8.1(m)(i) of the Indenture. These Events of Default were
predicated upon facts "stipulate[d]" and "agree[d]" to by Ocwen
that, among other things, it had engaged in "numerous and
significant" violations of New
York law, had "inadequate and ineffective technology systems
and personnel," and "regularly gives borrowers incorrect or
outdated information, sends borrowers backdated letters, unreliably
tracks data for investors, and maintains inaccurate
records."[2] BlueMountain requested implementation of the
"express and reasoned remedy to compensate the Noteholders for the
increased risk of loss associated with the specified Events of
Default: an increased rate of return."[3] Under the
terms of the Indenture, the increased Note Interest Rate was due on
the next scheduled Payment Date of February
17, 2015.[4] In advance of the February 17 Payment Date, however, DBNT
represented to BlueMountain's counsel that it had not made any
determination as to the merits of the Events of Default asserted in
the January 23 Letter, and that it
had not formally or informally solicited opinions from any
Noteholders concerning the matter. DBNT stated that, due to
these considerations, it required additional time, beyond the
February 17 Payment Date, to fulfill
its duties as Indenture Trustee to evaluate the merits of the
January 23 Letter.
To afford DBNT a reasonable opportunity to perform its duties,
BlueMountain allowed DBNT to delay making a determination as to the
merits of BlueMountain's claims until after the February 17 Payment Date. BlueMountain
agreed to DBNT's request to reserve the higher interest payment due
with respect to the February 17
Payment Date only. Specifically, BlueMountain informed DBNT
that it "does not object to the Trustee withholding and
reserving—in lieu of distributing the Incremental Interest Payment
to the Noteholders on the next Payment Date—funds in the amount of
the Incremental Interest Payment due for the period from and
including January 23, 2015 through
February 17, 2015, with the
understanding that the funds withheld shall be deducted from
amounts that would otherwise be distributed to [HLSS]."[5]
BlueMountain agreed to DBNT's request even though the Events of
Default specified in the January 23
Letter are predicated on irrefutable facts in the public domain and
the determination of the propriety of the relief requested by
BlueMountain is straightforward. BlueMountain also informed
DBNT that it "will consider additional requests, if any, by the
Trustee to consent to the withholding and reserving—in lieu of
distributing—of Incremental Interest Payments for future Payment
Dates in view of the facts and circumstances as they exist at that
time."[6] Independent of the agreement with BlueMountain, the
Trustee secured HLSS's consent to the withholding and reserving by
the Trustee of higher interest payment amounts from funds that
otherwise would have been distributed to HLSS. Neither the
BlueMountain nor the HLSS agreement with the Trustee is a decision
on the merits of the January 23
Letter, or relieves the Trustee of its obligation to timely address
the noticed Events of Default.
The Downgrades
Since the January 23 Letter,
Ocwen's servicing operations were subject to two recent rating
downgrades. First, on January 29,
2015, Moody's downgraded Ocwen's "servicer quality (SQ)
assessments as a primary servicer of subprime residential mortgage
loans to SQ3- from SQ3 and as a special servicer of residential
mortgage loans to SQ3- from SQ3."[7] Second, on February 4, 2015, Fitch downgraded Ocwen's
servicer ratings as follows: (i) Ocwen's residential primary
servicer rating for Prime, Alt-A, Subprime, HELOC, and Closed-end
Second Lien products to "RPS4" from "RPS3"; (ii) Ocwen's
residential special servicer rating to "RSS4" from "RSS3"; and
(iii) Ocwen's master servicer rating to "RMS4" from
"RMS3."[8] The reduction in Ocwen's servicing rating to the
levels of the Moody's and Fitch downgrades (together, the
"Downgrades") provides an objective measure of a material increase
in risk associated with Ocwen's servicing operations. Home
Loan Servicing Solutions, Ltd. ("HLSS Ltd.") also recognized as
much in its recent press release, which noted that Ocwen's "ability
. . . to maintain its residential mortgage servicer ratings" is an
"[i]mportant factor[] that could cause actual results to differ
materially" from the company's "forward looking
statements."[9] Accordingly, as detailed below, the
Designated Servicing Agreements and Transaction Documents state
that such Downgrades shall automatically, without further inquiry,
give rise to events of defaults and termination events, which in
turn, constitute Events of Default under Sections 8.1(d) and
8.1(m)(i) of the Indenture.
Section 8.1(d)
Under Section 8.1(d) of the Indenture, an Event of Default
occurs when "the Servicer . . . shall materially breach or
default in the due observance or performance of any of its
covenants or agreements in this Indenture or any other Transaction
Document (subject to any cure period provided therein) . . .
."[10] The Receivables Sale Agreement is a Transaction
Document.[11] In Section 4 of the Receivables Sale Agreement,
Ocwen made a series of covenants, including a covenant titled
"Default."[12] Therein, Ocwen covenanted that—through to the
date on which Ocwen "shall sell to HLSS all of the servicing rights
and obligations under [the] Designated Servicing Agreement" (the
"MSR Transfer Date"),[13] which has not occurred—it "is not
in default . . . under any material agreement . . .
including without limitation, each Designated
Servicing Agreement, excluding those as a result of a
breach of a Collateral Performance Test in respect of which no
notice of termination has been sent[]."[14] Ocwen further
covenanted that "[e]ach Designated Servicing
Agreement, as amended, is in full force and effect and
no default (other than such an event resulting solely
from the failure of a Collateral Performance Test under the related
Servicing Agreement) exists thereunder . . . ."[15]
A significant number of Designated Servicing Agreements have
events of default or servicer termination events as a result of the
Downgrades. Ocwen Financial Corporation recently reported
that out of the "approximately 4,000 private label securities (PLS)
agreements" it currently services, "[t]o date, including the recent
announcement from Fitch, our servicer ratings have fallen below the
minimum criteria set forth in 482 PLS agreements."[16] This
represents approximately 12% of the PLS agreements serviced by
Ocwen, and includes a material number of Designated Servicing
Agreements.
The minimum rating criteria in the Designated Servicing
Agreements validate the Downgrades as an objective measure of a
material increase in the risk of loss already realized with respect
to Ocwen's servicing operations. Moreover, the right to
terminate Ocwen as a servicer under Designated Servicing Agreements
as a consequence of the Downgrades creates incremental risk of loss
to the Noteholders. As recited in the January 23 Letter, Ocwen and HLSS acknowledged in
the offering memorandum for the HSART Trust that terminations "may
result in delays or interruptions in payments on the Notes" and
that the "yield on [the] Notes may be impacted."[17] For all
these reasons, the Downgrades have triggered defaults in the
Designated Servicing Agreements, which, in turn, have caused
additional Events of Default under Section 8.1(d) of the
Indenture.
Section 8.1(m)(i)
Under Section 8.1(m)(i) of the Indenture, an Event of Default
occurs when there is "an event of default under any full-recourse,
term loan facility under which a Subservicer, HLSS or [HLSS Ltd.]
is borrower, including, without limitation, the loan facility
evidenced by that certain Senior Secured Term Loan Facility
Agreement."[18] The Downgrades gave rise to additional Events
of Default under the Senior Secured Term Loan Facility Agreement,
as follows:
- Ocwen is the borrower and a Loan
Party under the Senior Secured Term Loan Facility Agreement.
See Senior Secured Term Loan Facility
Agreement § 1.01 (definition of "Loan
Party").
- Section 8.01(e) of the Senior Secured Term Loan Facility
Agreement, titled "Default in Other Agreements," provides that an
Event of Default arises upon the occurrence of, among other things,
the "breach or default by any Loan
Party with respect to any other material term of . . . any
loan agreement, mortgage, indenture or other agreement relating to
such item(s) of Indebtedness, in each case beyond the grace period,
if any, provided therefor, if the effect of such breach or default
is to cause, or to permit the holder or holders of that
Indebtedness (or a trustee on behalf of such holder or holders), to
cause, that Indebtedness to become or be declared due and payable
(or redeemable) prior to its stated maturity or the stated maturity
of any underlying obligation, as the case may be." Id. § 8.01(e)(ii)(2).
- The Master Servicing Rights Purchase Agreement and each related
Sale Supplement[19] are items of Indebtedness under Section 8.01(e)
of the Senior Secured Term Loan Facility Agreement.[20]
- The Downgrades constitute Termination Events under each Sale
Supplement.[21] Upon the occurrence of a Termination Event, HLSS
obtains the right to direct Ocwen to sell its mortgage servicing
rights to pay amounts due to HLSS.[22] Other market participants
seem to suggest that the Termination Events do not afford Ocwen's
other secured lenders similar rights, and therefore, proceeds from
a sale of Ocwen's rights will benefit HLSS exclusively.[23] To the
contrary, the Termination Events trigger a cross-default under the
Senior Secured Loan Facility Agreement, which entitles the
participating lenders to accelerate Ocwen's debt (among other
remedies).[24] Moreover, under the loan facility, the participating
lenders may make claims to the proceeds from the servicing
transfer.[25]
In summary, the Downgrades gave rise to a Termination Event in
each of the Sales Supplements, which gave rise to an Event of
Default under the Senior Secured Term Loan Facility Agreement, thus
constituting an Event of Default under the Indenture.[26]
* * * *
Please be advised that this notice is without prejudice to, and
with express reservation of, any additional rights and remedies
that BlueMountain has under the Indenture or otherwise. Also,
please do not hesitate to contact me with any questions relating to
the above at the telephone number or email address listed at the
top of this letter.
Very truly yours,
Erik Haas
cc: HLSS Holdings, LLC
as Administrator and as Servicer
(on and after the
MSR Transfer Date)
1661 Worthington Road, Suite 100
West Palm Beach, FL 33409
Attention: Corporate Secretary
[1] DBNT is required to provide
"written notice specifying the nature and status of any . . . Event
of Default, Facility Early Amortization Event or other event or
occurrence which could have an Adverse Effect." See
Indenture § 3.3(b). Such notice must be provided to the
Noteholders, the Indenture Trustee, the Issuer and each Note Rating
Agency promptly after receiving knowledge of such event, but no
later than three Business Days thereafter. Id.
[2] January
23 Letter at 2-5 (quoting from Consent Order Pursuant to New
York Banking Law § 44, In re Ocwen Fin. Corp. & Ocwen Loan
Servicing, LLC (NYSDFS Dec. 22,
2014), http://www.dfs.ny.gov/
about/ea/ea141222.pdf).
[3] January
23 Letter at 18.
[4] See Indenture § 1.1
(definition of "Payment Date").
[5] Letter to DBNT, dated February 16, 2015, at 1-2.
[6] Id. at 2.
[7] Moody's, Moody's downgrades
Ocwen's SQ subprime and special servicer assessments,
Jan. 29, 2015,
https://www.moodys.com/research/Moodys-downgrades-Ocwens-SQ-subprime-and-special
servicer-assessments--PR_316552.
[8] Fitch, Fitch Downgrades Ocwen's
RMBS Primary, Special and Master Servicer Ratings; Outlook
Stable, Feb. 4, 2015,
https://www.fitchratings.com/creditdesk/press_releases/detail.cfm?
pr_id=979187.
[9] HLSS Ltd., Home Loan Servicing
Solutions, Ltd. Signs Agreement with Deutsche Bank National Trust
Company, Feb. 18, 2015,
http://www.sec.gov/Archives/edgar/data/1513161/00015131611
5000008/ex991pressreleasefebruary1.htm. The press release
also listed HLSS Ltd.'s "ability to enforce [its] contractual
remedies against Ocwen" and Ocwen's "ability . . . to obtain or
maintain ratings of its financing facilities" as "[i]mportant
factors" that could affect the company's projections.
Id.
[10] An Event of Default arises under Section
8.1(d) if such default continues for five days after the earlier of
(i) "actual discovery by a Responsible Officer of the Issuer, the
Receivables Seller, the Servicer, the Depositor or the
Administrator, as applicable, or (ii) the date on which written . .
. notice of such failure, requiring the same to be remedied, shall
have been given from the Indenture Trustee or any Noteholder to a
Responsible Officer of the Issuer, the Receivables Seller, the
Servicer, the Depositor or the Administrator . . . ."
Indenture § 8.1(d).
[11] See Indenture § 1.1 (defining
"Transaction Documents" to include the Receivables Sale Agreement,
which is defined as "[t]he Third Amended and Restated Receivables
Sale Agreement, dated as of March 13,
2013 . . .").
[12] Receivables Sale Agreement §
4(a)(xxi).
[13] Id. at 2 ("Recitals").
[14] Id. § 4(a)(xxi) (emphasis
added).
[15] Id. § 4(a)(xxiii) (emphasis
added). Ocwen also covenanted in this section that "each of
the Designated Servicing Agreements is a Facility Eligible
Servicing Agreement until the MSR Transfer Date."
Id. As discussed in the January
23 Letter, the Designated Servicing Agreements no longer
qualify as Facility Eligible Servicing Agreements, which serves as
another basis for an Event of Default under Section 8.1(d) of the
Indenture.
[16] Ocwen Financial Corporation, Company
Update for Stakeholders, Feb. 5,
2015,
http://www.sec.gov/Archives/edgar/data/873860/000101905615000118/ex99_1.htm.
[17] See January 23 Letter at 14 (quoting the
offering memorandum at 43, 59).
[18] Indenture § 8.1(m)(i).
[19] See Sale Supplements dated as of
February 10, 2012, May 1, 2012, August 1,
2012, September 13, 2012,
March 13, 2013, May 21, 2013 and July 1,
2013, by and between Ocwen and HLSS (collectively, "Sale
Supplements").
[20] The term "Indebtedness" is broadly
defined to encompass any agreement requiring Ocwen to pay amounts
to another entity, including agreements secured by interests in any
property or assets owned or held by Ocwen. See Senior
Secured Term Loan Facility Agreement § 1.01 (definition of
"Indebtedness"); see also id. § 6.01 (providing that "Parent
and the Borrower shall not . . . [d]irectly or indirectly . . .
become . . .liable with respect to any Indebtedness, except . . . .
(q) Indebtedness to HLSS pursuant to the HLSS Transactions").
As HLSS Ltd. explained, Ocwen's "obligations under the [Master
Servicing Rights] Purchase Agreement with respect to the Rights to
MSRs will be secured by a security interest in the Initial Mortgage
Servicing Rights and the proceeds of the Initial Mortgage Servicing
Rights." Form S-1, Amendment No. 8 to Form S-1, Registration
Statement, dated Feb. 28, 2012,
http://www.sec.gov/Archives/edgar/data/1513161/000119312512083105/
d151656ds1a.htm. HLSS Ltd. further stated that it "will
account for the acquired Rights to MSRs as a financing" and that it
will "record the servicing fees that [it] receive[s] with respect
to the Rights to MSRs, net of servicing costs related to such
Rights to MSRs, as payments on the note and apportion these
payments between interest income and principal repayment."
Form S-1/A, Amendment No. 2, Registration Statement, dated
Dec. 18, 2012,
http://www.sec.gov/Archives/edgar/data/1513161/
000119312512505688/0001193125-12-505688-index.htm.
[21] See Sale Supplements § 1.1
(definition of "Termination Event").
[22] See id. § 6.13.
[23] Letter by Mangrove Partners to the Board
of Directors of HLSS, Ltd., dated Feb. 9,
2015, at 1,
http://nebula.wsimg.com/877b1c8c7c62f637df12bed832e1400b?AccessKeyId=1EAB89B7CDECFC76E87B&disposition=0&alloworigin=1.
[24] Senior Secured Term Loan Facility
Agreement § 8.01 (setting forth consequences of Events of
Default).
[25] See id. ("the Administrative
Agent may cause the Collateral Agent to enforce any and all Liens
and security interests created pursuant to Security
Documents").
[26] As stated in the January 23 Letter, under the Indenture, Events of
Default trigger a Facility Early Amortization Event, and vice
versa. (Indenture §§ 1.1, 8.1(s).)
Media Contacts:
Dukas Public Relations
Doug Hesney
(212) 704-7385
Doug@dukaspr.com
Finsbury
Kal Goldberg / Kyle Giunta
(646) 805-2000
Kal.Goldberg@finsbury.com / Kyle.Giunta@finsbury.com
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SOURCE BlueMountain Capital Management, LLC