Business Context and Reporting Period
This Form 8-K, dated November 29, 2017, is filed by New Residential Investment Corp. (the "Company"). The filing reports the entry into material definitive agreements to acquire Shellpoint Partners LLC ("Shellpoint") and related mortgage servicing rights. The Company's subsidiary, NRM Acquisition LLC, is the purchaser in the transaction.
Key Financial Metrics and Transaction Terms
- Acquisition Purchase Price: Approximately $150 million for Shellpoint's equity interests, based on tangible book value subject to closing adjustments.
- MSR Purchase Price: Approximately $40 million for a portfolio of Fannie Mae and Freddie Mac mortgage servicing rights (MSRs) with an aggregate principal balance of approximately $8 billion.
- Earnout Payments: Up to $60 million in potential cash payments over three years, contingent on Shellpoint's pre-tax income exceeding specified thresholds. Approximately 92% is allocated to sellers and 8% to an employee incentive plan.
- Debt and Liquidity: The filing does not provide specific current debt levels, liquidity ratios, or cash flow metrics for the Company. It notes that the Company entered into a guaranty for the Purchaser's payment obligations.
Material Changes and Agreements
The filing details three primary agreements executed on November 29, 2017:
- Securities Purchase Agreement (SPA): Acquisition of all outstanding equity interests of Shellpoint.
- MSR Purchase Agreement: Purchase of MSRs from New Penn Financial LLC (a Shellpoint subsidiary).
- Subservicing Agreement: New Penn will subservice loans for which the Company acquired servicing rights.
These transactions represent a significant expansion of the Company's mortgage servicing portfolio and business operations.
Guidance, Risks, and Contingencies
Closing Conditions: The transactions are subject to customary conditions, including the expiration of HSR Act waiting periods, receipt of governmental and third-party approvals, and the absence of a Material Adverse Effect. The MSR Purchase is not conditioned on the consummation of the Shellpoint Acquisition.
Termination Rights: Either party may terminate the SPA if closing does not occur by October 31, 2018, or if a court order prohibits the transaction.
Risks and Uncertainties: Management highlights risks regarding the ability to obtain approvals, financing difficulties, integration challenges, regulatory issues, and potential unanticipated liabilities. The filing includes standard forward-looking statement disclaimers regarding future performance and transaction timing.
Investor Verification Checklist
- Verify the final purchase price and tangible book value adjustments at closing.
- Confirm the status of required governmental and third-party approvals (e.g., GSEs, HSR Act).
- Monitor the timeline for closing, noting the October 31, 2018, termination deadline.
- Assess the Company's financing strategy to fund the approximately $190 million total transaction value ($150M equity + $40M MSR).
- Review the specific pre-tax income thresholds required to trigger the $60 million earnout payments.