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Ditech Holding Corporation – Files Chapter 11 (Again), Announces Restructuring Support Agreement and $1.9bn in DIP Financing

February 11, 2019 – Ditech Holding Corporation (“Ditech” or the “Company,” f/k/a Walter Investment Management Corp) and 13 affiliated Debtors filed for Chapter 11 protection with the U.S. Bankruptcy Court in the Southern District of New York, lead case number 19-10412. The Company, an independent servicer and originator of mortgage loans and servicer of reverse mortgage loans, is represented by Ray C. Schrock of Weil, Gotshal & Manges. Further board-authorized engagements include (i) Houlihan Lokey Capital as investment banker, (ii) Alix Partners as financial advisor and (iii) Epiq Corporate Restructuring as claims agent.
The Company’s petition notes between 50,000 and 100,000 creditors; estimated assets of $12,335,007,000; and estimated liabilities of $12,279,825,00. Documents filed with the Court list the Company’s three largest unsecured creditors as (i) GN Solutions Inc. ($1.5mn trade debt), (ii) Black Knight Tech Solutions ($1.5mn trade debt) and (iii) Servicelink ($1.2mn trade debt).

Chapter 22

This is the second time in bankruptcy in just over a year for these Debtors. In November 2017, while still Walter Investment Management Corp (WIMC”), the Debtors filed a prepackaged Chapter 11, emerging on February 9, 2018 having eliminated $800mn of debt. At the time, the emerging Debtors stated, “Ditech Holding is beginning its next chapter with increased financial flexibility and continued momentum in our efforts to transform our business. We are excited about the prospects of our core business and are confident that we are well positioned to drive profitable growth and create value for our shareholders.” 

In a press release announcing the current filing, the Company announced that it, along with certain of its subsidiaries including Ditech Financial LLC and Reverse Mortgage Solutions, Inc., (“RMS”) had entered into a restructuring support agreement (the “Restructuring Support Agreement” or the “RSA”) with certain lenders holding more than 75% of Ditech Holding’s term loans (the “Consenting Term Lenders”). According to the Company, “The RSA provides for a restructuring of the Company’s debt while the Company continues to evaluate strategic alternatives. Under the RSA, the Company will pursue a recapitalization that deleverages its capital structure by extinguishing over $800 million in corporate debt, and a liquidity enhancing transaction that includes an appropriately sized working capital facility at emergence. As contemplated by the RSA, the Company simultaneously continues to consider a broad range of options, including but not limited to potential transactions such as a sale of the Company and/or a sale of all or a portion of the Company’s assets, as well as potential changes to the Company’s business model.”

Thomas F. Marano, President and Chief Executive Officer of Ditech, said, “Since we completed a recapitalization last February, we have made important progress on our strategic initiatives and our expense management efforts. 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 maximizing value and creating the best path forward for our business. We are pleased to have the support of our lenders in this process.”

Restructuring Support Agreement

On February 8, 2019, the Company executed the RSA with an ad hoc group of term lenders holding approximately $736.6 million of term loans. The Lombardo Declaration (defined below) states, “By virtue of the Restructuring Support Agreement, the Company has commenced these chapter 11 cases with a clear path to a confirmable chapter 11 plan of reorganization and a viable recapitalization—in which, among other things, over $800 million in funded debt would be extinguished, leaving a significantly deleveraged reorganized Company wholly owned by the Term Lenders, with $400 of term loan debt and an appropriately sized exit working capital facility or consummation of another liquidity enhancing transaction (the ‘Reorganization Transaction’). As a toggle to the Reorganization Transaction, the Restructuring Support Agreement also provides for the continuation of the Company’s Prepetition Marketing Process…whereby any and all bids for the Company or its assets will be evaluated as a precursor to confirmation of any chapter 11 plan of reorganization.” 

In an 8-K filed with the SEC, Ditech provides further detail as to this flexible approach to strategic alternatives, “The RSA also provides for the continuation of the Company’s prepetition review of strategic alternatives (the ‘Marketing Process’), whereby, as a potential alternative to the implementation of a Reorganization Transaction, any and all bids for the Company or its assets will be evaluated as a precursor to confirmation of any chapter 11 plan of reorganization. The Marketing Process will provide a public and comprehensive forum in which the Debtors will seek bids or proposals for three types of potential transactions, as described below. If a bid or proposal is received representing higher or better value than the Reorganization Transaction, it will either be incorporated into the Reorganization Transaction or pursued as an alternative to the Reorganization Transaction in consultation with the Consenting Term Lenders and subject to the RSA….The three types of transactions for which bids will be solicited are:  (i) a ‘Sale Transaction’ meaning, a sale of substantially all of the Company’s assets, as provided in the RSA; (ii) an ‘Asset Sale Transaction’ meaning, the sale of a portion of the Company’s assets other than a Sale Transaction consummated prior to Effective Date; provided such sale shall only be conducted with the consent of the Requisite Term Lenders; and (iii) a ‘Master Servicing Transaction’ meaning, as part of a Reorganization Transaction to the extent the terms thereof are acceptable to the Requisite Term Lenders, entry by the Company into an agreement or agreements with an approved subservicer or subservicers (the “New Subservicer”) whereby, following the Effective Date, all or substantially all of the Company’s mortgage servicing rights are subserviced by the New Subservicer. 

The RSA presently contemplates the following treatment for certain key classes of creditors under the Reorganization Transaction:   
  • DIP Warehouse Facility Claims. On the Effective Date, the holders of DIP Warehouse Facility Claims will be paid in full in cash;
  • Term Loan Claims. On the Effective Date, the holders of Term Loan Claims will receive their pro rata share of new term loans under an amended and restated credit facility agreement in the aggregate principal amount of $400 million, and 100% of the Company’s new common stock, which will be privately held;
  • Second Lien Notes Claims. On the Effective Date, the holders of the Company’s 9.00% Second Lien Senior Subordinated PIK Toggle Notes due 2024 (“Senior Notes”) will not receive any distribution;
  • Go-Forward Trade Claims. On the Effective Date, holders of all Go-Forward Trade Claims (i.e., trade creditors identified by the Company (with the consent of the Requisite Term Lenders (as defined in the RSA)) as being integral to and necessary for the ongoing operations of New Ditech) will receive a distribution in cash in an amount equaling a certain percentage of their claim, subject to an aggregate cap; and
  • Existing Equity Interests. On the Effective Date, holders of the Company’s existing equity will have their claims extinguished.”
The RSA is filed with the Lombardo Declaration and attached to the 8-K.

DIP Financing 

To address the working capital needs and support the transactions contemplated by the RSA, the Debtors have secured commitments for debtor-in-possession (“DIP”) warehouse facility facilities (“DIP Warehouse Facilities”) that will provide the Debtors with up to $1.9 billion in available financing to refinance their existing  warehouse and servicer advance facilities (the “DIP Warehouse Financing”). The DIP Warehouse Facilities will provide (i) up to $650 million to fund Ditech Financial’s origination business, (ii) up to $1.0 billion will be available to RMS and (iii) up to $250 million will be available to finance the advance receivables related to Ditech Financial’s servicing activities. In addition, DIP lenders have agreed to provide Ditech Financial up to $1.9 billion in notional trading capacity required by Ditech Financial to hedge its interest rate exposure with respect to the loans in Ditech Financial’s origination pipeline, as well as those loans that will be subject to repurchase obligations with the DIP Warehouse Facilities lenders prior to being securitized.
Events Leading to the Chapter 11 Filing
In a declaration in support of the Chapter 11 filing (the “Lombardo Declaration”) [Docket No. 2], Gerald A. Lombardo, Ditech’s Chief Financial Officer, detailed the events leading to the Company’s Chapter 11 filing.
The Lombardo Declaration states, “Notwithstanding the Company’s efforts to implement its business plan, which included further cost reductions, operational enhancements and streamlining of its business, following emergence from the WIMC Chapter 11 Case, the Company continued to face liquidity and performance challenges that were more persistent and widespread than anticipated. Coupled with the industry and market factors, these performance challenges have resulted in less liquidity, making the implementation of key operational enhancements more difficult—resulting in their postponement. In addition, a number of industry factors have caused Ditech increased uncertainty with respect to its future performance, including the projected decrease in total originations, and for reverse mortgages, the impact of changes in HUD regulations, among other things. The increase in interest rates has also negatively impacted mortgage originators and servicers generally—the Debtors are no exception. As interest rates have risen, less borrowers are refinancing loans in a higher interest rate environment, resulting in lower origination volume for the Company.
The Company’s liquidity has also suffered from a burdensome interest and amortization obligations on its corporate debt and tightening of rates from its lending counterparties. In the normal course of business, the Company utilizes its mortgage loan servicing advance facilities and master repurchase agreements to finance, on a short-term basis, mortgage loan related servicing advances, the repurchase of HECMs out of Ginnie Mae securitization pools, and funding of newly originated mortgage loans. These facilities are typically subject to annual renewal requirements and typically contain provisions that, in certain circumstances, prevent the Company from utilizing unused capacity under the facility and/or accelerate the repayment of amounts under the facility.”
Additional Professional Engagements

Kirkland & Ellis LLP is acting as legal counsel and FTI Consulting Inc. is acting as financial advisor to the consenting Term Lenders.

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The post Ditech Holding Corporation – Files Chapter 11 (Again), Announces Restructuring Support Agreement and $1.9bn in DIP Financing appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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