Walter Investment Management Corp. (WAC)

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Walter Investment Management (WAC)

Q3 2012 Earnings Call

November 08, 2012 10:00 am ET


Whitney K. Finch - Vice President of Investor Relations

Mark J. O'Brien - Chairman and Chief Executive Officer

Charles E. Cauthen - Chief Financial Officer and Chief Operating Officer

Denmar John Dixon - Vice Chairman, Executive Vice President and Director


Thomas LeTrent - FBR Capital Markets & Co., Research Division

Michael J. Grondahl - Piper Jaffray Companies, Research Division

Bradley G. Ball - Evercore Partners Inc., Research Division

Douglas Harter - Crédit Suisse AG, Research Division

Henry J. Coffey - Sterne Agee & Leach Inc., Research Division

Kevin Barker - Compass Point Research & Trading, LLC, Research Division

Ryan O'Steen - Keefe, Bruyette, & Woods, Inc., Research Division

James J. Fowler - Harvest Capital Strategies LLC



Welcome, and thank you for standing by. [Operator Instructions] I would now like to turn the meeting over to Ms. Whitney Finch. Thank you. You may begin.

Whitney K. Finch

Thank you, Lisa. Good morning, and thank you for joining us for Walter Investment Management Corp.'s Earnings Conference Call for the quarter ended September 30, 2012. This call is being webcast live on the Internet, and will be archived on our website for at least 30 days.

This morning, management will discuss earnings for the quarter ended September 30, 2012, as well as our current business outlook. Let me remind you that comments on this call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act. These statements are based on the Company's current expectations and involve risks and uncertainties that could cause actual results to differ materially from those in these statements. Please refer to our SEC filings for a full discussion of the risk factors that may affect any forward-looking statements. Except for any obligations to disclose material information under federal securities laws, we undertake no obligation to release publicly any revisions to forward-looking statements to reflect events or circumstances after this conference call.

We will discuss non-GAAP financial measures during the call. These non-GAAP measures are fully reconciled in the tables attached to the earnings press release we issued earlier today and the presentation accompanying this call. We believe that these measures provide investors useful information about our business trends. However, our non-GAAP measures do not replace and are not superior to GAAP measures.

Participating in today's call are Walter Investment's Chairman and CEO, Mark O'Brien; COO and CFO, Charles Cauthen; Vice Chairman and Executive Vice President, Denmar Dixon; and CAO, Kim Perez. Once we have completed our prepared remarks, we will open the call to questions from our dial-in participants.

At this time, I will turn the call over to Mark.

Mark J. O'Brien

Thank you, Whitney, and good morning, everyone. The third quarter of 2012 was an extremely busy and successful quarter for Walter Investment. We announced the acquisition of Reverse Mortgage Solutions, the best-in-class origination and servicing platform in the reverse mortgage space on September 4 and have since completed the transaction. We are quite pleased to be adding the deeply experienced management team from RMS, along with the premier technology in reverse mortgage space to our organization. We think this positions Walter Investment to capitalize on the substantial growth opportunities in the reverse sector.

During the quarter, we were awarded our second delinquency flow contract on November 1, and we boarded our first transfer of over 13,000 accounts with a UPB in excess of $2 billion under this program. We anticipate that together with the delinquency flow program we announced in June, the flow programs will add an average of approximately 10,000 units per month over their term, a significant advantage to our operators as they plan for future business, and sufficient to offset our existing disappearance.

In October, we launched a number of capital-raising initiatives targeted to increase the company's financial flexibility, lower our cost of capital and leave us well positioned to capture our fair share of the accelerating opportunities in the mortgage sector. We successfully completed the concurrent common stock and convertible senior subordinated notes offering, upsizing the common stock offering from 4.5 million shares to 6 million shares, and pricing the convertible notes at the better ends of the range. The common stock offering generated net proceeds to the company of $276.1 million, which were used to partially fund the acquisition of RMS and will be used to improve liquidity for anticipated growth opportunities, as well as for general corporate purposes.

The convertible notes offering generated net proceeds of $280.4 million, which were used to pay down the existing second lien term loan facility and related fees, expenses and premiums. We have also begun the process of arranging a senior secured first lien term loan facility in the aggregate principal amount of up to $600 million and a senior secured revolving credit facility in the aggregate principal amount of $100 million. We intend to use the proceeds of these borrowings to repay all indebtedness outstanding under the current facilities, to pay related transaction costs and expenses and for working capital, as well as for potential growth opportunities and general corporate purposes. The financing is progressing very well in the market at this time.

On October 24, we were jointly awarded, with Ocwen Loan Servicing, the highest and best bid for the mortgage servicing and originations and capital market platform assets of ResCap. We bid 400 -- excuse me, $540 million to acquire a Fannie Mae MSR with approximately $50.4 billion of UPB at August 31, 2012, approximately $183 million of advances associated with that MSR and the ResCap originations and capital markets platform. We anticipate the MSR will be acquired at very attractive levels as the note -- excuse me, and note that the associated returns exceed our initial thresholds. We also expect the final purchase price of the MSR and advances to be adjusted prior to close, as the UPB on the MSR and related advances decline due to natural runoff.

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