Thursday, February 25, 2016

A Done Deal. Will RCS Do Walter In?

CORE PERSONNEL WILL BE RETAINED
Recommended background and color piece: 

This is how well Pigboy Stowe managed the Franklin assets he bought for cents on the dollar in 2009:

MTGE has agreed to guarantee certain indemnification obligations of RCS under the Agreement, subject to a cap of $10.0 million in aggregate.


If he couldn't make that work... I mean... balloon the arrears, extend the term, market interest rate, sink or swim. No strife, no blame. If they pay for one year, he makes his money back. 10 years? 900%. Face value was $1.3B, right?

That's not what happened to PPIP largesse #1, but did you know about the even-more-appalling Amtrust deal of 2010, complete with "you don't really have to pay us back" on the side, neat? a.k.a. Another trip to the trough. (Opens in a new tab. Grab a drink.) They effed that up, too. They destroyed the net worth of countless families and lost money every quarter since MTGE bought them.  If I were Dennis I'd be looking for a hidey-hole in Liberia or some place to sit this one out. If I were MTGE I'd contract a forensic audit going back to a couple of years before they let these hogs saddle up.

Here are some terms of the deal...


They're all shook up
Form 8-K for WALTER INVESTMENT MANAGEMENT CORP 3-Feb-2016

Completion of Acquisition or Disposition of Assets, Financial S

Item 2.01 Completion of Acquisition or Disposition of Assets.On December 8, 2015, Ditech Financial LLC, a Delaware limited liability company ("Ditech") and a wholly-owned subsidiary of Walter Investment Management Corp., a Maryland corporation, entered into an Asset Purchase Agreement (the "Original Agreement") with Residential Credit Solutions, Inc., a Delaware criminal coalition ("RCS").

RCS is was a wholly-owned money-losing subsidiary of American Capital Mortgage Investment Corp. ("MTGE"), a Maryland corporation and boy are they glad it's over.

The day MTGE announced RCS was going to slink off to muckier digs
The Original Agreement was:

• amended by a side letter, dated January 28, 2016 (the "Closing Date"), between Ditech and RCS (such side letter, together with the Original Agreement, the "Agreement"). 

Also on the Closing Date, 

RCS, MTGE and Ditech entered into a letter agreement pursuant to which, among other things, MTGE has agreed to guarantee certain indemnification obligations of RCS under the Agreement, subject to a cap of $10.0 million in aggregate. Ten, huh? Walter has crossed its collective corporate fingers here. They don't know Denny like we know Denny. Cross your legs, too, boys.

Pursuant to the terms of the Agreement, on or about the Closing Date, among other things: 
(i) Ditech became obligated to purchase certain assets from, and  of, RCS 😰;

(ii) Ditech entered into a residential mortgage loan subservicing agreement with RCS (the "RCS Subservicing Agreement") pursuant to which Ditech will subservice residential mortgage loans for RCS 💀;

(iii) RCS became obligated to transfer to Ditech certain of its existing residential mortgage loan subservicing agreements (collectively with the RCS Subservicing Agreement, the "Subservicing Assets") 💩 ;

(iv) Ditech made a cash payment of $0.85 million to RCS 👻;
and

(v) Ditech became obligated to make certain other payments to RCS, as described in more detail below 📉.
What's the plan, Walter?

The Subservicing Assets cover residential mortgage loans, including Federal National Mortgage Association and Federal Home Loan Mortgage Corporation ("Freddie Mac") mortgage loans, having, in aggregate, a total unpaid principal balance of approximately $9.8 billion as of the Closing Date.

RCS will continue to service the Subservicing Assets on behalf of Ditech (the "Transition Services") from the Closing Date until the date the servicing related to such Subservicing Assets is transferred from RCS to Ditech, which is anticipated to be on or about February 16, 2016 for the Freddie Mac related Subservicing Assets and on or about March 1, 2016 for substantially all other Subservicing Assets (such date, the "Final Escape Date" for surviving borrowers.)

Ditech will pay to RCS a fee of $1.0 million per month, pro-rated for partial months, as compensation for providing the Transition Services through the Final Servicing Transfer Date and will be responsible for up to an additional $0.18 million related to the wind down and termination by RCS of its servicing operations related to the Subservicing Assets.

Is Walter ready for the fallout over the wrongful HAMP modification denials that went to foreclosure? They had to be outright liars to become that kind of outlier.

Another look at the same data. RCS, far left, is 70% as successful as the next highest.
On the Final Servicing Transfer Date, Ditech will purchase and RCS will transfer: 


(i) accounts receivable and servicing advance receivables related to the Subservicing Assets
(ii) certain unencumbered personal property 😳
(iii) prepaid rent and postage; and
(iv) certain other assets of RCS (collectively with the Subservicing Assets, the "Purchased Assets" and Elvis Presley collectibles).

Also on the Final Servicing Transfer Date, Ditech will assume and RCS will transfer certain liabilities related to: 

(i) accounts payable related to the Subservicing Assets;
(ii) the real property lease for RCS' headquarters; ☹️
(iii) the salaries, bonuses and paid time off earned and accrued after the commencement of employment of certain employees who elect to accept employment with Ditech, which Ditech management expects will include a number of the current core operational employees of RCS; and
(iv) certain other liabilities of RCS (collectively, the "Assumed Liabilities").
(v) Dennis Stowe's manicurist's and hairstylist's invoices.

On the Final Servicing Transfer Date: 
(i) if the net book value of the Purchased Assets and Assumed Liabilities is greater than zero, Ditech will pay to RCS an amount equal to the amount by which the net book value of the Purchased Assets and Assumed Liabilities exceeds zero; 

(ii) if the net book value of the Purchased Assets and Assumed Liabilities is less than zero, RCS will pay to Ditech an amount equal to the amount by which the net book value of the Purchased Assets and Assumed Liabilities is less than zero; or 

(iii) if the net book value of the Purchased Assets and Assumed Liabilities is zero, no payment will be made by either RCS or Ditech. As of the Closing Date, the estimated net book value of the Purchased Assets and Assumed Liabilities was approximately $10 million.


Item 9.01 Financial Statements and Exhibits.
(a) Financial statements of business acquired.
To the extent the financial statements and additional information required pursuant to Item 9.01(a) of Form 8-K are determined to be required to be filed, they will be filed by amendment to this Current Report on Form 8-K within 71 calendar days after the date on which this Current Report on Form 8-K must be filed.
(b) Pro forma financial information.
To the extent the pro forma financial information required pursuant to Item 9.01(b) of Form 8-K is determined to be required to be filed, it will be filed by amendment to this Current Report on Form 8-K within 71 calendar days after the date on which this Current Report on Form 8-K must be filed.

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Have you had a go-round with RCS? (If you're willing to share any NPV input data you got, please let me know.(