Ocwen Financial Corp (NYSE:OCN) Swapping Notes

Ocwen Financial Corp (NYSE:OCN), through its subsidiary Ocwen Loan Servicing (OLS), has embarked on a process of replacing earlier issued notes with a near maturity date with new notes with a longer maturity date.

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The company said the 6.625% Senior Notes issued by OLS and due 2019 will be replaced by new 8.375% Senior Notes due 2022. Ocwen’s OLS is swapping notes for up to $350 million in principal amount.

The notes exchange offer will run until November 30. However, the exchange offer is subject to certain conditions, which were earlier communicated by Ocwen.

Guarantors of the new notes

The newly issued notes will be guaranteed by Ocwen together with its subsidiaries including Homeward Residential Holdings, Homeward Residential and Ocwen Mortgage Servicing. These are wholly owned units of Ocwen and in this case they are collectively known as Subsidiary Guarantors. Perhaps something to remember here is that the same subsidiaries guaranteed OLS’s earlier loan.

Stock rating downgrade

The notes replacement at Ocwen comes only a few days after analysts at Piper Jaffray downgraded their rating on the stock. The analysts now rate Ocwen stock UNDERWEIGHT, down from NEUTRAL, but they still have a $2 price target on it. Shares of Ocwen are trading above $4.30. The main reason Piper Jaffary moved to downgrade Ocwen is that it sees the financial services company’s tangible book value continuing to shrink.

3Q16 earnings beat expectations

But Ocwen recently delivered a surprise, posting EPS of $0.08 in 3Q16, thus beating the consensus estimate by a whopping $0.40. Though revenue of $359.45 million slid 11.2% YoY, it still beat the consensus estimate by a decent $6.37 million.

One of the fastest growing units of Ocwen is the Automotive Capital Services business, which posted a 66% growth.

Stock Ocwen is down more than 37% YTD, but rose more than 2% in the last session after announcing the notes swap.

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