Ocwen Financial Corp.’s (OCN) corporate family and senior secured ratings have been reaffirmed by Moody's Investors Service – the rating division of Moody's Corporation (MCO) – at ‘B1’. All these ratings have a ‘Stable’ outlook.
Moody’s stated that Ocwen’s strong growth strategy is supported by its robust capital position. Further, the company has been successful in pursuing and completing acquisitions to date. At present, the company is the fourth largest mortgage servicer in the country with a market share of roughly 5%.
Moreover, the ‘Stable’ outlook on the ratings is based on Moody’s expectation that Ocwen will be able to integrate all its announced as well as future acquisitions without compromising on servicing and financial performance. Last week, Ocwen announced a deal to acquire residential mortgage servicing rights (MSRs) on the portfolio comprising nearly 184,000 loans with a total principal balance of $39 billion from Wells Fargo & Co. (WFC). Further, earlier this week, Ocwen announced its plan to issue a new $2.2 billion 7-year senior secured term loan to finance the deal.
Of late, Ocwen has been growing inorganically. The company has acquired MSRs from several large banks including Morgan Stanley (MS), The Goldman Sachs Group, Inc. and JPMorgan Chase & Co. Once the company closes all its announced deals, the total servicing portfolio will likely be approximately worth $500 billion.
Nevertheless, Moody’s remains concerned about Ocwen’s opportunistic acquisition spree, which is leading to an increase in servicing volume. Additionally, the company’s concentration on mono-line residential mortgage servicing market is one of the reasons for its rating not being revised upward. Further, management’s history of looking for other growth opportunities diffuses the focus on its core servicing business.
Hence, any ratings upgrade by Moody’s in the near term is unlikely for Ocwen. However, in case the company’s servicing or financial performance weakens, a downgrade in ratings could occur.
Currently, Ocwen carries a Zacks Rank #2 (Buy).
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