Mr. Cooper’s shares hit record high after issuing $1 billion in bonds

Mr. Cooper priced the $1 billion bond issue a day after releasing preliminary fourth-quarter results (pretax operating income of $151 million). Nearly double the amount reported a year ago However, the fourth quarter 2023 total does not include Deducted due to its recent cybersecurity incident.

BTIG analyst Eric Hagen said in a report released on Tuesday that its shares hit a record high after the bond issuance was announced. The transaction is scheduled to close on February 1.

Mr. Cooper’s subsidiary Nationstar Mortgage Holdings has assessed $1 billion of senior notes due February 1, 2032 at 7.125%. Interest is payable every six months starting on August 1st.

The net proceeds are expected to be used to repay a portion of Mr. Cooper’s outstanding debt amount under the MSR Facility.

By doing so, the company should ultimately achieve “certain cost savings compared to using bilateral MSR notes, which have funding costs approximately 300 to 350 basis points higher than SOFR,” Hagen wrote.

“Repaying the guaranteed line does not prevent Mr. Cooper from drawing down debt again in the future, although most loans will not extend beyond 2025, so using an unsecured liquidity runway looks more balanced at this time,” he continued. “In terms of guarantees, we expect to have approximately $1.2 billion in MSR drawdowns, $500 million in MSR advances and $500 million in unrestricted cash.”

Hagen said Cooper has more room to add debt to its balance sheet in the future.

Whether that depends on how the complexity of its mortgage servicing portfolio changes when the Fed cuts short-term rates, because it still has the sensitivity to prepayments and recaptures if rates rise sharply, he explained.

Much of Mr. Cooper’s portfolio growth came from bulk purchases of low-rate mortgages, including Service rights obtained from Home Point“We think the scope to recapture results is more complex than with loans and MSRs through flowing or co-issuance conduits,” Hagen said.

Meanwhile, Keefe, Bruyette & Woods analyst Bose George said these preliminary results, released in a filing with the Securities and Exchange Commission, do not include the impact of a $27 million one-time charge related to the company’s recent cybersecurity incident. in a research note on Monday.

Those results did exceed the $102 million estimate George provided for Mr. Cooper, including those fees.

Its mortgage servicing rights portfolio grew to $992 billion, up 14% year over year, beating George’s forecast of 11%. Mr. Cooper expects the mortgage servicing rights portfolio to reach $1.1 trillion by the end of the quarter, the filing said.

However, net of any hedging gains, MSR’s mark-to-market loss was $41 million. This means that the realized hedge ratio is 81%. The servicing price cuts are likely the result of mortgage rates falling from their peak in late October, which will encourage holders of recently disbursed mortgages to refinance.

Pre-tax operating income for the Services segment was $229 million, and excluding mark-to-market and other items, pre-tax income was $184 million.

Excluding mark-to-market, cybersecurity incident costs and $8 million in costs related to the acquisitions of Roosevelt and Home Point, Mr. Cooper’s fourth-quarter pretax income was $69 million, down from a $10 million loss for the year improve. previously.

In the fourth quarter, the Origins segment reported pretax income of $10 million.

During this period, Mr. Cooper’s grant originations were $2.7 billion, compared with $3.4 billion in the third quarter Hagen said revenue in the fourth quarter of 2022 was $3.2 billion.

The company will report earnings on February 9.

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