Mr. Cooper Group has priced the issuance of $750 million in debt to refinance outstanding mortgage servicing rights (MSR) facilities, an announcement that comes only four days after making public its billion-dollar acquisition of Flagstar Bank‘s servicing assets.
On Monday, the mortgage lender and servicer said that its debt offering to qualified investors through subsidiary Nationstar Mortgage Holdings will bear an annual interest rate of 6.5% that is payable semiannually. The senior notes are due on Aug. 1, 2029. Mr. Cooper and Nationstar will guarantee the notes on a joint basis.
Once the transaction is closed, which is expected on Aug. 1, Mr. Cooper will use the proceeds to repay a portion of its outstanding MSR facilities.
Drawdowns of existing MSR lines and available cash will be used to fund the $1.4 billion acquisition of MSRs and the third-party origination (TPO) platform from Flagstar. The transaction will bring $356 billion in mortgage servicing rights, advances and subservicing contracts, along with 1.3 million customers, to Mr. Cooper. The deal is expected to close in the fourth quarter of 2024.
Credit rating agency Fitch said in a report that it “does not expect the debt issuance to have a meaningful impact on the company’s leverage profile as proceeds are expected to refinance outstanding secured debt.”
According to the agency, Mr. Cooper’s leverage — calculated as debt to tangible equity — was 2.1 times in the second quarter of 2024, compared to 1.9 times at the end of 2023. In addition, the company has a strong franchise, a conservative funding profile and an experienced management team.
But Fitch added that Mr. Cooper’s ratings can be constrained by “the highly cyclical nature of the mortgage industry; a reliance on secured, short-term, wholesale funding facilities; and potential servicing advance needs and regulatory scrutiny from its exposure to Ginnie Mae loans.”
Mortgage lenders and servicers have been active in the debt market of late.
Earlier this year, Mr. Cooper announced a Nationstar $1 billion debt issuance to repay MSR facilities. The senior notes, also issued to qualified investors, mature in 2032 and bear interest at 7.125% per year, paid semiannually.
Under stress, loanDepot concluded its plan to extend $500 million senior notes due in the fourth quarter of 2025. Pennymac also issued new debt last year that will mature in December 2029 and pay 7.875% annually. Meanwhile, Rithm Capital priced an offering of $775 million in aggregate principal of senior unsecured notes due in 2029 at 8% per year.
