Standard and Poor's (S&P) Rating Services recently affirmed Ocwen Financial Corp., (OCN) 'B' issuer credit rating and removed the rating from CreditWatch negative. In addition, S&P also placed Ocwen's outlook as negative.
On April 20, 2015, S&P placed Ocwen's ratings on CreditWatch with negative implications after a disclosure that its auditor may include "going concern" language in the 2014 audit. This language included the commitment on a portion of its nonagency mortgage servicing advance lines was in jeopardy, and a change to the servicer’s ranking could affect earnings.
“Our affirmation reflects the resolution of the 2014 audit opinion in May 2015, the refinancing of OCN’s largest servicing advance facility in September 2015, and our expectation that our downgrade of Ocwen Loan Servicing’s servicer ranking to BELOW AVERAGE will not result in the termination of a meaningful amount of servicer contracts, thus providing some stability to cash flow,” S&P stated.
S&P’s negative outlook for Ocwen stems from the likelihood of a loss in revenue, because of strategic and operational challenges that the company will face as it reduces its unpaid principal balance of servicing assets via sales and run-off and relies on mortgage originations to generate servicing assets. All factors that may impact the servicer’s leverage profile negatively.
“The negative outlook reflects the uncertainty surrounding OCN’s ability to generate sufficient revenue to support debt levels,” S&P noted. “We believe that OCN faces increased strategic and operational risks as it reduces its servicing portfolio and grows its residential mortgage origination capabilities to generate servicing assets and supplement fee revenue.”
Ratings Score Snapshot:
Issuer Credit Rating: B/Negative/
Business Risk: Weak
• Country Risk: Very Low
• Industry Risk: Moderately High
• Competitive Position: Weak
Financial Risk: Significant
Last week, Ocwen reduced its workforce by 10 percent at the Waterloo, Iowa residential servicing facility as part of an ongoing cost improvement initiative.
The company’s move will impact nearly 300 employees, a large portion of their 2,900 total employees. However, all affected employees will be able to apply at other Ocwen facilities.
“We understand the impact that these decisions have on our employees, their families, and the community,” said Ronald Faris, president and CEO of Ocwen. “This was not an easy decision to make, but a necessary one as we look to transform Ocwen to ensure long-term success. We appreciate all the support and dedication our Waterloo employees have shown over the years, and we look forward to remaining part of the Waterloo business community.”
Click here to view S&P's rating report.