Pennymac to issue $650M in unsecured debt

Pennymac Financial Services is the latest mortgage company to issue debt in a challenging housing market. The California-based company announced on Wednesday it intends to offer a $650 million aggregate principal amount of senior notes due in 2029.

“Proceeds from the offering will be used to repay a portion of the Company’s secured term notes due 2025 and for other general corporate purposes,” Pennymac said in an 8-K filing with the Securities and Exchange Commission (SEC).

Analysts see mortgage companies issuing debt as a sign that market conditions may improve in 2024. Lenders are raising more money to invest in their business, improve liquidity and increase the share of unsecured debt, which has no collateral, on their balance sheet.

In October, HousingWire reported that Freedom Mortgage and PennyMac Mortgage Investment Trust moved to raise money through debt offerings with high investor demand. For example, Freedom raised $1.3 billion in about 24 hours, higher than the $1 billion expected by the company, reflecting an oversubscribed deal.

Other peers would follow suit, analysts said at that time.

Pennymac Financial Services said its notes, to be offered in a private placement to qualified institutional buyers, will be “fully and unconditionally guaranteed on an unsecured senior basis.” The offer is subject to market conditions and other factors.

At the end of September, Pennymac had a debt-to-equity ratio of 2.6 times, lower than its target of 3.5 times.

In total, $1.8 billion was unsecured debt, with $650 million notes at 5.357% due in October 2025, which is expected to be replaced. The company also has $650 million at 4.250% due in 2029 and $500 million at 5.750% due in 2031.

Pennymac also informed the market this week that an arbitrator concluded the company has to pay $155.2 million to Black Knight in damages related to a breach of contract claim.

In 2019, Black Knight filed a lawsuit accusing Pennymac of copying its mortgage servicing platform, MSP, to create its Servicing Systems Environment (SSE) platform.

The arbitrator also concluded that Pennymac can keep all its intellectual property and software, including SSE, “free and clear of any restrictions on use.”

Companies can still move to correct, modify or vacate the interim award before a state court confirms it.