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UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
Pursuant
to Section 13 or 15(d) of The Securities Exchange Act of 1934
Date
of Report (Date of earliest event reported): October 21, 2024
ONITY
GROUP INC.
(Exact
name of registrant as specified in its charter)
| Florida |
|
1-13219 |
|
65-0039856 |
| (State
or other jurisdiction |
|
(Commission |
|
(IRS
Employer |
| of
incorporation) |
|
File
Number) |
|
Identification
No.) |
1661
Worthington Road, Suite 100
West
Palm Beach, Florida 33409
(Address
of principal executive offices)
Registrant’s
telephone number, including area code: (561) 682-8000
(Former
name or former address, if changed since last report)
Check
the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under
any of the following provisions:
| ☐ |
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| |
|
| ☐ |
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| |
|
| ☐ |
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| |
|
| ☐ |
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities
registered pursuant to Section 12(b) of the Act:
| Title
of each class |
|
Trading
Symbol(s) |
|
Name
of each exchange on which registered |
| Common
Stock, $0.01 Par Value |
|
ONIT |
|
New
York Stock Exchange (NYSE) |
Indicate
by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405
of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging
growth company ☐
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Item
2.02 Results of Operations and Financial Condition.
On
October 21, 2024, Onity
Group Inc. (“Onity” or the “Company”) announced the following preliminary estimated financial results
for the third quarter ended September 30, 2024:
(in
millions, except EPS)
Estimated financial results | |
3rd
Quarter 2024 – Estimate | | |
2nd
Quarter 2024 | |
| Net income | |
$ | 21.4 | | |
$ | 10.5 | |
| Diluted EPS | |
$ | 2.65 | | |
$ | 1.33 | |
| Adjusted pre-tax income (non-GAAP) | |
$ | 35.3 | | |
$ | 31.7 | |
| Total origination funded volume (UPB) | |
~$ | 8,500 | | |
$ | 7,000 | |
| Consumer Direct funded volume (UPB) | |
~$ | 240 | | |
$ | 158 | |
An
increase in recapture volume during the third quarter 2024 resulted in a $3.6 million increase in adjusted pre-tax income compared to
the second quarter 2024.
MSR
valuation adjustments due to changes in interest rates and other assumptions, net of hedging activities, were improved for the third
quarter 2024 relative to the second quarter 2024 with a net favorable impact to earnings. The Company’s MSR hedge coverage ratio
for the quarter remained within the Company’s target range of 90-110%. As a result of the decline in interest rates that occurred
in the third quarter of 2024 (10-year Treasury declined by 62 bps and mortgage rates declined by 91 bps, in each case compared to the
second quarter of 2024), the Company’s hedging gains largely offset fair value losses in its MSR portfolio.
Note
Regarding Non-GAAP Financial Measures
This
Item 2.02 contains references to adjusted pre-tax income, which is a non-GAAP financial measure. The Company believes this non-GAAP financial
measure provides a useful supplement to discussions and analysis of Onity’s financial condition because it is a measure that management
uses to assess the financial performance of its operations and allocate resources. However, this measure should not be analyzed in isolation
or as a substitute to analysis of the Company’s GAAP pre-tax income (loss) nor a substitute for cash flows from operations. Other
companies may use non-GAAP financial measures with the same or similar titles that are calculated differently and, as a result, comparability
may be limited. Readers are cautioned not to place undue reliance on analysis of the adjustments Onity makes to GAAP pre-tax income (loss).
The
following table reconciles net income to adjusted pre-tax income based on the preliminary estimated financial results for the quarter
ended September 30, 2024:
| |
(Dollars
in millions) |
|
3rd
Quarter 2024
– Estimate |
|
2nd
Quarter 2024 |
| I |
Estimated
Net Income |
|
21 |
|
11 |
| |
A.
Income tax benefit (expense) |
|
(6) |
|
(3) |
| II |
Reported
Pre-Tax Income (Loss) [I – A] |
|
28 |
|
14 |
| |
Forward
MSR Valuation Adjustments due to rates and assumption changes, net (a)(b) |
|
(1) |
|
(13) |
| |
Reverse
mortgage fair value changes due to rates and assumption changes (b)(c) |
|
6 |
|
(3) |
| III |
Total
MSR Valuation Adjustments due to rates and assumption changes, net |
|
4 |
|
(16) |
| |
Significant
legal and regulatory settlement expenses |
|
(6) |
|
2 |
| |
Severance
and retention (d) |
|
— |
|
(1) |
| |
LTIP
stock price changes (e) |
|
(1) |
|
1 |
| |
Other
expense notables (f) |
|
(1) |
|
(1) |
| |
B.
Total Expense Notables |
|
(8) |
|
1 |
| |
C.
Other Income Statement Notables (g) |
|
(4) |
|
(3) |
| IV |
Total
Other Notables [B + C] |
|
(12) |
|
(2) |
| V |
Total
Notables (h) [III + IV] |
|
(8) |
|
(18) |
| VI |
Estimated
Adjusted Pre-Tax Income (Loss) [II – V] |
|
35 |
|
32 |
| a) | MSR
Valuation Adjustments that are due to changes in market interest rates, valuation inputs
or other assumptions, net of overall fair value gains / (losses) on MSR hedges, including
fair value changes of pledged MSR liabilities associated with MSRs transferred to MSR Asset
Vehicle LLC (MAV), Rithm Capital Corp. (RITM) and others and excess servicing strip (ESS)
financing liabilities that are due to changes in market interest rates, valuation inputs
or other assumptions, a component of MSR valuation adjustment, net. |
| | |
| b) | The
changes in fair value due to market interest rates were measured by isolating the impact
of market interest rate changes on the valuation model output as provided by our third-party
valuation expert. |
| | |
| c) | Fair
value changes of loans held for investment and HMBS-related borrowings due to market interest
rates and assumptions, a component of gain on reverse loans held for investment and HMBS-related
borrowings, net. |
| | |
| d) | Severance
and retention expense due to organizational rightsizing or reorganization. |
| | |
| e) | Long-term
incentive program (LTIP) compensation expense changes attributable to stock price changes
during the period |
| | |
| f) | Includes
costs associated with, but not limited to, our corporate rebranding in June 2024 and other
strategic initiatives. |
| | |
| g) | Contains
non-routine transactions, including, but not limited, to gain on debt extinguishment and
fair value assumption changes on other investments recorded in other income/expense. |
| | |
| h) | Certain
previously presented notable categories with nil numbers or amounts rounding to zero have
been omitted. |
The
preliminary estimated financial results for the third quarter 2024 set forth above are based on currently available information and reflect
the Company’s current estimates and assessments. The Company has not completed its third quarter financial closing procedures and
controls and governance procedures, and our independent registered public accounting firm has not performed any audit, review or set
of procedures with respect to the above preliminary estimated financial results. As a result, actual reported results may differ materially
from the preliminary results presented above as a result of the completion of our financial closing procedures and controls or any adjustments
that may result from the completion of our review of our consolidated financial statements. These preliminary estimated financial results
should not be viewed as a substitute for our full interim financial statements prepared in accordance with GAAP. Accordingly, you should
not place undue reliance on these preliminary estimated financial results.
The
information in this Item 2.02 shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act
of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that Section, nor shall such information
be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or the Exchange Act, except as shall
be expressly set forth by specific reference in such filing.
Item
8.01 Other Events.
Unregistered
Offering of Senior Notes
On
October 21, 2024, Onity issued a press release announcing that one of its subsidiaries plans to offer $475,000,000 aggregate principal
amount of its senior notes, subject to market and other conditions. A copy of the press release is attached hereto as Exhibit 99.1 and
is incorporated herein by reference.
The
Notes have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), or
the securities laws of any other jurisdiction. The press release shall not constitute an offer to sell or the solicitation of an offer
to buy, nor shall there be any offer or sale of, any securities in any jurisdiction in which such offer, solicitation or sale would be
unlawful.
PHH
Mortgage Corporation Issues Notice of Conditional Full Redemption for its 7.875% Senior Secured Notes due 2026
On
October 21, 2024, PHH Mortgage Corporation, a wholly-owned subsidiary of Onity (“PMC”), issued a notice to the holders of
its outstanding 7.875% Senior Secured Notes due 2026 (the “PMC Notes”) that it will redeem all of the outstanding PMC Notes
(the “Redemption”) on November 20, 2024 (such date, as it may be delayed, the “Redemption Date”) at a redemption
price equal to 101.969% of the principal amount of the PMC Notes, plus accrued and unpaid interest thereon from September 15, 2024 (the
most recent interest payment date) to, but not including, the Redemption Date (the “Redemption Price”). The obligation of
PMC to redeem the PMC Notes is subject to (i) the completion of a debt financing by affiliates of PMC that will provide funds sufficient
to pay the Redemption Price in full for all PMC Notes and (ii) the release and delivery of such funds from escrow to PMC’s parent,
PHH Corporation, on or prior to the Redemption Date (the conditions described in clauses (i) and (ii), collectively, the “Financing
Condition”). The Redemption Date may be delayed until the Financing Condition is satisfied or waived by PMC in its sole discretion.
If the Financing Condition is not satisfied or waived by PMC in its sole discretion, PMC may elect to rescind the notice of redemption
and terminate the Redemption.
Nothing
in this Item 8.01 constitutes a notice of redemption or any offer to purchase or solicitation of an offer to sell any of the outstanding
PMC Notes. The Redemption will be made solely pursuant to the separate redemption notice that PMC has issued under the indenture governing
the PMC Notes.
Item
9.01 Financial Statements and Exhibits.
(d)
Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its
behalf by the undersigned, hereunto duly authorized.
| |
ONITY
GROUP INC. |
| |
(Registrant) |
| |
|
|
| Date:
October 21, 2024 |
By: |
/s/
Sean B. O’Neil |
| |
|
Sean
B. O’Neil |
| |
|
Chief
Financial Officer |
Exhibit
99.1
 |
Onity
Group Inc. |
ONITY
GROUP ANNOUNCES PROPOSED OFFERING OF $475 MILLION OF SENIOR NOTES DUE 2029
West
Palm Beach, FL – (October 21, 2024) – Onity Group Inc. (NYSE: ONIT) (“Onity”), a leading non-bank mortgage servicer
and originator, today announced that PHH Escrow Issuer LLC (“Escrow Issuer”), a wholly-owned special purpose subsidiary of
PHH Corporation (“PHH”), plans to offer $475 million aggregate principal amount of Senior Notes due 2029 (the “Notes”),
subject to market and other conditions.
The
Notes will initially be issued by Escrow Issuer. The net proceeds from the sale of the Notes, together with additional cash from Onity,
are expected to be placed into escrow pending the satisfaction of certain conditions, including, but not limited to, the consummation
of the recently announced sale by Onity of its 15% ownership interest in MSR Asset Vehicle LLC to certain funds affiliated with Oaktree
Capital Management, L.P. (the “MAV Sale”). Upon satisfaction of the escrow conditions, the escrowed proceeds will be released
to PHH Corporation, and at that time PHH Corporation, along with Onity and certain subsidiaries of PHH, will enter into a supplement
to the indenture governing the Notes pursuant to which PHH will become a co-issuer of the Notes and Onity and such subsidiaries will
become guarantors of the Notes.
Upon
their release from escrow, the net proceeds from the offering will be used, together with the net proceeds from the MAV Sale and cash
on hand, to redeem all of PHH Mortgage Corporation’s outstanding 7.875% Senior Notes due 2026 and all of Onity’s outstanding
12.00%/13.25% Senior Second Lien Notes due 2027.
The
Notes and the related guarantees have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities
Act”), or the securities laws of any other jurisdiction.
The
Notes are being offered only to persons reasonably believed to be qualified institutional buyers in reliance on the exemption from registration
provided by Rule 144A of the Securities Act and to non-U.S. persons outside of the United States in compliance with Regulation S of the
Securities Act.
This
press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any offer or sale of,
any security in any jurisdiction in which such offer, solicitation or sale would be unlawful.
About
Onity Group
Onity
Group Inc. (NYSE: ONIT) is a leading non-bank mortgage servicer and originator providing solutions through its primary brands, PHH Mortgage
and Liberty Reverse Mortgage. PHH Mortgage is one of the largest servicers in the country, focused on delivering a variety of servicing
and lending programs. Liberty is one of the nation’s largest reverse mortgage lenders dedicated to education and providing loans
that help customers meet their personal and financial needs. We are headquartered in West Palm Beach, Florida, with offices and operations
in the United States, the U.S. Virgin Islands, India and the Philippines, and have been serving our customers since 1988.
Forward
Looking Statements
This
press release contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities
Exchange Act of 1934, as amended, including statements relating to the offering of the senior notes by PHH and the use of proceeds therefrom.
We cannot provide any assurance that these events will occur. Forward-looking statements involve a number of assumptions, risks and uncertainties
that could cause actual results to differ materially from those expressed in the forward-looking statements, including, but not limited
to, the fact that the size of the offering could change or that the offering could be terminated; or if the Notes are issued and sold,
that the conditions to the release of the escrowed funds from escrow, including the consummation of the MAV Sale, will not occur. Our
forward-looking statements speak only as of the date they are made and, we disclaim any obligation to update or revise forward-looking
statements whether as a result of new information, future events or otherwise.
For
Further Information Contact:
Dico
Akseraylian, SVP, Corporate Communications
(856)
917-0066
mediarelations@onitygroup.com
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