A hedge fund that recently claimed that Ocwen Financial (OCN) and its affiliated company, Home Loan Servicing Solutions (HLSS), breached their mortgage bond covenants is now saying that recent events have done nothing but reinforce their initial claims of default.
BlueMountain Capital Management recently sent notices of default to Ocwen and HLSS, saying that Ocwen’s regulatory troubles have caused an “irrefutable” default on notes the hedge fund holds in connection with the HLSS Servicer Advance Receivables Trust.
And now the hedge fund is claiming that recent downgrades to Ocwen’s servicer ratings are more evidence that Ocwen and HLSS is in default.
BlueMountain Capital specifically mentions Fitch Ratings’ recent downgrade of Ocwen’s mortgage servicer ratings as further evidence of default.
“Specifically, the recent downgrades of Ocwen's servicer rating 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,” BlueMountain Capital said in a letter addressed to Home Loan Servicing Solutions, Ocwen Loan Servicing, HLSS Servicer Advance Receivables Trust, and Deutsche Bank National Trust Company.
“Those defaults and termination events, in turn, resulted in events of default under the indenture,” BlueMountain continues. “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%.”
BlueMountain said that the recent downgrades are independent of, but reinforce, the previously claimed events of default.
In its original letter, BlueMountain Capital stated that the events of default are the result of “Ocwen's material breach of its covenants to, among other things, comply with applicable laws and requisite servicing obligations; resulting from Ocwen's breach of a warranty in the Senior Secured Term Loan Facility Agreement and a subsequent amendment thereto that it is not in violation of any law that could reasonably be expected to cause, among other things, a material adverse effect on Ocwen's business and financial condition; and resulting from the failure of the Collateral Test, which measures whether the Notes are adequately collateralized.”
HLSS has already questioned BlueMountain’s motivation in publicly stating that HLSS defaulted on mortgage-backed securities that BlueMountain claims it owns.
“We have very serious concerns about BlueMountain’s motivations for publicly filing their letter, James Lauter, HLSS’ senior vice president and chief financial officer, said in a recent letter sent to Deutsche Bank National Trust Company, the indenture trustee.
BlueMountain also previously disclosed that that holds a short position in the stocks of both Ocwen and HLSS, and according to HLSS, that short position is BlueMountain’s true motivation for accusing HLLS of default.
“It appears that BlueMountain’s assertions may be motivated by its financial interest in profiting from these short positions, rather than by any interest it may have as a holder of notes issued by the trust,” Lauter also said in the letter, which was revealed in a filing with the Securities and Exchange Commission.
BlueMountain’s motivation was also called into question by Ocwen, which recently released a statement responding to BlueMountain’s claims.
“Ocwen refutes BlueMountain's allegations and believes no event of default has occurred under the HSART Indenture,” Ocwen stated. “As previously stated, Ocwen will continue to vigorously defend against BlueMountain's campaign, as a short seller of Ocwen stock, to undermine Ocwen's share price and financial position through misleading and inaccurate press releases.”
BlueMountain, on the other hand, states that the events of default “remain valid,” despite no determination being made of their merits by Deutsche Bank National Trust Company or any court.
“However, because both notices are predicated on irrefutable facts in the public domain and the plain reading of the governing agreements,” BlueMountain said, “we expect the indenture trustee to render a determination in the near term.”
