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New Residential Investment Corp. -- Moody's affirms New Residential's ratings after announcement of acquisition of Caliber; outlook stable

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Rating Action: Moody's affirms New Residential's ratings after announcement of acquisition of Caliber; outlook stableGlobal Credit Research - 14 Apr 2021New York, April 14, 2021 -- Moody's Investors Service, ("Moody's") has affirmed the B1 long-term corporate family rating and B3 long-term senior unsecured rating for New Residential Investment Corp. (New Residential). The rating outlook remains stable.The ratings affirmation follows New Residential's announcement that it intends to acquire Caliber Home Loans, Inc. (Caliber), a large US residential mortgage company, for an estimated purchase price of $1.675 billion in cash, which management expects to close in the third quarter of 2021.Affirmations:..Issuer: New Residential Investment Corp.....LT Corporate Family Rating, Affirmed B1....Senior Unsecured Regular Bond/Debenture, Affirmed B3Outlook Actions:..Issuer: New Residential Investment Corp.....Outlook, Remains StableRATINGS RATIONALEThe ratings affirmation reflects Moody's unchanged view of New Residential's b1 standalone credit profile. Moody's expects that the acquisition of Caliber will complement New Residential's existing business, as it has the potential to materially strengthen its origination franchise and ultimately its profitability over time. However, the acquisition poses material integration and operational risks, which in Moody's view currently constrain positive pressure on the company's standalone assessment.With the Caliber acquisition, New Residential will become a top 5 or so non-bank mortgage lender and servicer in the US, combining Caliber's approximately $80 billion and New Residential's approximately $62 billion of residential mortgage originations in 2020 with a servicing portfolio of approximately $450 billion (not including mortgage servicing rights owned by New Residential but subserviced by others) as of year-end 2020.Moody's believes that combining two large, rapidly growing origination and servicing platforms gives rise to integration and operational risks, including IT. These risks, however, are partly mitigated by the modest overlap in the two companies' origination channels along with New Residential management's experience in acquiring and integrating other mortgage businesses and portfolios.New Residential plans to issue around $500 million in common stock to help fund the transaction, and it estimates that its capitalization, as measured by tangible common equity (TCE) to adjusted tangible managed assets (TMA) following the close of the acquisition, will be around 17.5% compared to 16.6% at year-end 2020.Over the last couple of quarters, New Residential has strengthened its funding and liquidity profile by reducing its reliance on short-term secured funding and mark-to-market financing, increased its servicer advance capacity and diversified its funding, including the September 2020 issuance of $550 million senior unsecured notes due 2025. Moody's considers that issuance as a credit positive development since it provides the company with greater funding options, particularly during times of stress. New Residential has also grown its on balance sheet liquidity, which will in part be used to fund the acquisition of Caliber. The use of cash to fund the transaction is in line with Moody's expectation that New Residential would seek to deploy excess liquidity in growth opportunities.The stable outlook reflects Moody's expectation that New Residential will successfully integrate the Caliber acquisition while maintaining solid profitability in its origination segment and solid capital levels without a material weakening of its liquidity profile, over the next 12-18 months.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSMoody's expects integration and operational risks from the Caliber acquisition, given its size, to constrain the company's standalone assessment and ratings, making rating upgrades unlikely over the next 12-18 months. The ratings could be upgraded if the company successfully integrates the acquisition while achieving solid profitability and capitalization levels for example, with net income to average managed assets and TCE/ tangible managed assets (TMA, Moody's adjusted) consistently remain above 2.5% and 17.5%, respectively. In addition, increasing its reliance on unsecured funding would be positive for the standalone assessment and ratings.The ratings could be downgraded if the integration of the companies' origination and servicing platforms were to materially weaken New Residential's financial performance. The ratings could also be downgraded if Moody's were to expect capitalization as expressed by TCE to TMA (Moody's adjusted) to remain below 15%, if profitability deteriorates such as net income to average manage assets falling below 1% or if the company's liquidity position deteriorates materially.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody's key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody's Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody's Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody's general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the EU and is endorsed by Moody's Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody's affiliates outside the UK and is endorsed by Moody's Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody's office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Gene Berman Asst Vice President - Analyst Financial Institutions Group Moody's Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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