Ditech pursues pre-packaged restructuring

April 2019 | DEALFRONT | BANKRUPTCY & CORPORATE RESTRUCTURING

Financier Worldwide Magazine

April 2019 Issue

Mortgage originator Ditech Holding Corp, and its subsidiaries, including Ditech Financial LLC and Reverse Mortgage Solutions Inc, filed for Chapter 11 bankruptcy protection in the US Bankruptcy Court for the Southern District of New York in February. This marks the second time in the last two years that Ditech has filed for bankruptcy.

According to the filing, Ditech entered into a restructuring support agreement with certain lenders holding more than 75 percent of the company’s term loans. Under the terms of the agreement, the nonbank will pursue a recapitalisation that deleverages its capital structure by removing more than $800m in corporate debt. The company entered bankruptcy protection with $961m in term loan debt after suffering a cash crunch and failing to find a buyer for itself. The company is pursuing a number of options during its second period of bankruptcy restructuring, including a sale of the company, a sale of all or a portion of the company’s assets, as well as potential changes to the company’s business model.

Ditech has received commitments for up to $1.9bn in debtor-in-possession (DIP) financing to support its operations during the Chapter 11 process. The company claims it will continue to operate as normal during the restructuring period. In a statement, Ditech noted that it remains “focused on providing homeowners with the right home financing solutions and the same high-quality service they have come to expect from its businesses”.

“Since we completed a recapitalisation last February, we have made important progress on our strategic initiatives and our expense management efforts,” said Thomas F. Marano, president and chief executive officer of Ditech, in a statement. “However, as a result of market challenges that have continued to accelerate and pressure our business, we must take further action. We intend to use this process to restructure our balance sheet and help us meet our obligations. We will continue to evaluate a broad range of options with the goals of maximising value and creating the best path forward for our business. We are pleased to have the support of our lenders in this process.

“As we move forward, we remain firmly committed to our mission of serving customers through the homeownership journey. I want to thank our employees for their continued dedication to serving our customers. Our people will continue to be the driving force behind our success,” he added.

Ditech, which was known as Walter Investment Management prior to its December 2017 pre-packaged Chapter 11 filing, emerged in February 2018 having eliminated approximately $800m of outstanding corporate debt from its balance sheet and enhanced its financial flexibility. However, the company has been unable to turn around its fortunes. In June 2018, Ditech warned investors that it was exploring “strategic alternatives to enhance stockholder value” that included possibly selling the company. That move came after its initial bankruptcy proceedings, which stemmed from a long string of financial losses for the company. In August, the company cut 450 mortgage jobs and in November, it was kicked off the New York Stock Exchange due to its low share price and market capitalisation. And in January, Ditech removed its chief operating officer, Ritesh Chaturbedi, who had only been with the company for nine months.

Ditech’s latest filing will allow the company to recapitalise, improve its liquidity, and build an “appropriately sized working capital facility”.

Weil Gotshal & Manges LLP is Ditech’s legal counsel, Houlihan Lokey is an investment banking debt restructuring adviser and AlixPartners LLP is the financial adviser to the company in connection with the financial restructuring. Kirkland & Ellis LLP is legal counsel, while FTI Consulting is financial adviser to the lenders holding more than 75 percent of the company’s term loans.

Richard Summerfield