Item
1.01 Entry Into a Material Definitive Agreement
7.875%
Senior Secured Notes due 2026 of PHH Mortgage Corporation
On
March 4, 2021, Ocwen Financial Corporation (NYSE: OCN) (“Ocwen” or the “Company”), a leading non-bank
mortgage servicer and originator, announced that its subsidiary PHH Mortgage Corporation (“PMC”) completed the issuance
and sale of $400 million aggregate principal amount of 7.875% Senior Secured Notes due 2026 (the “Notes”). The Notes
are guaranteed on a senior secured basis by the Company and PHH Corporation (“PHH” and, together with Ocwen, the “Guarantors”),
the parent company of PMC and subsidiary of the Company. The Notes were sold in an offering exempt from the registration requirements
of the Securities Act of 1933, as amended (the “Securities Act”).
The
Notes were issued under an indenture, dated March 4, 2021, among PMC, the Guarantors and Wilmington Trust, National Association,
as trustee and collateral trustee (the “Indenture”). Interest on the Notes accrues at a rate of 7.875% per annum and
is payable semi-annually in arrears on March 15 and September 15 of each year, beginning on September 15, 2021. The Notes will
mature on March 15, 2026.
On
or after March 15, 2023, the Company may redeem some or all of the Notes at its option at the following redemption prices, plus
accrued and unpaid interest, if any, on the Notes redeemed to, but excluding, the redemption date if redeemed during the 12-month
period beginning on March 15 of the years indicated below:
Redemption year
|
|
Price
|
|
2023
|
|
|
103.938
|
%
|
2024
|
|
|
101.969
|
%
|
2025 and thereafter
|
|
|
100.000
|
%
|
Prior
to March 15, 2023, the Company may, on any one or more occasions, redeem some or all of the Notes at its option at a redemption
price equal to 100% of the principal amount of the Notes being redeemed, plus a “make-whole” premium equal to the
greater of (i) 1.0% of the then outstanding principal amount of such Note and (ii) the excess of (1) the present value at the
redemption date of the sum of (A) the redemption price of the Note at March 15, 2023 (such redemption price is set forth in the
table above) plus (B) all required interest payments due on the Note through March 15, 2023 (excluding accrued but unpaid interest),
such present value to be computed using a discount rate equal to the Treasury Rate (as defined in the Indenture) as of such redemption
date plus 50 basis points; over (2) the then outstanding principal amount of such Note, plus accrued and unpaid interest, if any,
on the Notes redeemed to, but excluding, the redemption date.
In
addition, on or prior to March 15, 2023, PMC may also redeem up to 35.0% of the principal amount of all Notes originally issued
under the Indenture (including Additional Notes (as defined in the Indenture)) using the net proceeds of certain equity offerings
(as defined in the Indenture) at a redemption price equal to 107.875% of the principal amount thereof, plus accrued and unpaid
interest to, but excluding, the date of redemption (subject to the rights of holders of Notes on the relevant regular record date
to receive interest due on the relevant interest payment date that is on or prior to the applicable date of redemption); provided
that:
(1)
at least 65.0% of the principal amount of all Notes issued under the Indenture (including Additional Notes) remains outstanding
immediately after any such redemption; and
(2)
PMC makes such redemption not more than 120 days after the consummation of any such equity offering.
Upon
the occurrence of certain events constituting a change of control (as defined in the Indenture), PMC will be required to make
an offer to repurchase all of the outstanding Notes at a purchase price equal to 101% of the principal amount thereof, plus accrued
and unpaid interest, if any, to, but excluding, the date of purchase.
The
Indenture contains customary covenants for debt securities of this type that limit the ability of PHH and its restricted subsidiaries
(including PMC) to, among other things, (i) incur or guarantee additional indebtedness, (ii) incur liens, (iii) pay dividends
on or make distributions in respect of PHH’s capital stock or make other restricted payments, (iv) make investments, (v)
consolidate, merge, sell or otherwise dispose of certain assets, and (vi) enter into transactions with Ocwen’s affiliates.
The
Indenture includes customary events of default, including, among other things, payment default, covenant default, payment defaults
and accelerations under other indebtedness, judgment defaults and bankruptcy, insolvency or reorganization affecting the Company,
PHH or any of PHH’s restricted subsidiaries that constitute a significant subsidiary.
Senior
Secured Second Lien Notes of Ocwen Financial Corporation
The
Company also announced the completion of its private placement of $199.5 million aggregate principal amount of senior secured
second lien notes (the “Company Notes”) to certain special purpose entities owned by funds and accounts managed by
Oaktree Capital Management, L.P. (the “Oaktree Investors”). The Company Notes were issued pursuant to a Note and Warrant
Purchase Agreement, dated February 9, 2021, between the Company and the Oaktree Investors. The Company Notes mature on March 4,
2027 with no amortization of principal. Interest on the Company Notes is payable quarterly in arrears on the last business day
of each March, June, September and December and accrues at the rate of 12% per annum to the extent interest is paid in cash or
13.25% per annum to the extent interest is “paid-in-kind” through an increase in the principal amount or the issuance
of additional Company Notes (“PIK Interest”). Prior to March 4, 2022, all of the interest on the Company Notes may,
at the Company’s option, be paid as PIK Interest.
On
or after March 4, 2022, a minimum amount of interest will be required to be paid in cash equal to the lesser of (i) 7% per annum
of the outstanding principal amount of the Company Notes and (ii) the total amount of unrestricted cash of the Company and its
subsidiaries less the greater of $125 million and the minimum liquidity amounts required by any agency.
The
Company Notes are solely the obligation of the Company. The Company Notes are secured by a pledge of substantially all of the
assets of the Company, including a pledge of the equity of the Company’s subsidiaries held directly by the Company. The
lien on the Company’s assets securing the Company Notes is junior to the lien securing the Company’s guarantee of
the Notes of PMC described above. The Company Notes are not guaranteed by any of the Company’s subsidiaries nor are they
secured by a pledge or lien on any assets of the Company’s subsidiaries.
Prior
to March 4, 2026, the Company is permitted to redeem the Company Notes in whole or in part at any time at a redemption price equal
to par, plus a make-whole premium, plus accrued and unpaid interest. On and after March 4, 2026, the Company will be permitted
to redeem the Company Notes in whole or in part at any time at a redemption price equal to par plus accrued and unpaid interest.
Upon
a change of control of the Company, the Company will be required to offer to repurchase the Company Notes at a purchase price
equal to 101% of the principal amount thereof plus accrued and unpaid interest.
Upon
consummation of certain non-ordinary course asset sales, the Company will be required to use the proceeds thereof to offer to
repurchase the Company Notes at a purchase price equal to 100% of the principal amount thereof plus accrued and unpaid interest,
unless such proceeds are reinvested in the business or used to retire structurally senior or secured indebtedness.
The
Company Notes have two financial maintenance covenants: (1) a minimum book value of stockholders’ equity of not less than
$275 million and (2) a minimum amount of unrestricted cash of not less than $50 million at any time. The Company Notes also have
affirmative and negative covenants and events of default that are customary for debt securities of this type.
The
net proceeds from the Company Notes will be used, together with the net proceeds from the Notes of PMC, to repay in full $498
million of indebtedness, including PMC’s Senior Secured Term Loan, all of PHH’s outstanding 6.375% senior unsecured
notes due 2021 and PMC’s 8.375% senior secured second lien notes due 2022 and the remaining proceeds will be used for general
corporate purposes, including to accelerate growth of Ocwen’s origination and servicing business.
In
addition, concurrently with the initial issuance and sale of the Company Notes, the Company issued to the Oaktree Investors warrants
to purchase 1,184,768 shares of the Company’s common stock (the “Common Stock”) (which amount, upon exercise
of the Warrants, would be equal to 12.0% of the Company’s outstanding Common Stock as of the date of issuance of the Warrants)
at an exercise price of $26.82 per share.