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Rocket Companies will make the most of the company’s credit rating to issue $4 billion in debt and use the proceeds to retire notes held by a subsidiary of the nation’s largest mortgage servicer, Mr. Cooper, which Rocket plans to acquire this year.
Rocket said Tuesday it plans to issue $2 billion in senior unsecured notes due in 2030 and another $2 billion due in 2033.
After the Mr. Cooper acquisition closes, Rocket will use part of the proceeds to pay off $1.95 billion in notes owed by Mr. Cooper subsidiary Nationstar Mortgage Holdings Inc. that are due in 2026, 2027 and 2028.
The remaining proceeds may be used “at the company’s discretion” to pay off, purchase or amend additional Nationstar notes that will be due in 2029, 2030, 2031 and 2032.
Mr. Cooper had $11.3 billion in outstanding debt as of March 31, including $4.95 billion in unsecured senior notes at interest rates ranging from 5 percent to 7.125 percent. Due dates for the notes are spread out over six years, from 2026 to 2032.
Rocket’s plans to acquire not only Mr. Cooper but real estate brokerage Redfin attracted the attention of analysts at Fitch Ratings, who in March warned that they may downgrade debt issued by subsidiary Rocket Mortgage to junk bond status.
In placing Rocket Mortgage’s issuer default rating on “rating watch negative,” Fitch analysts said Rocket has a “strong liquidity profile,” but will probably have to keep borrowing in order to fund loans and acquire mortgage servicing rights after it closes the deals to acquire Mr. Cooper and Redfin.
Fitch analysts said they would weigh a downgrade on Rocket Mortgage’s long-term issuer default rating (IDR) to “‘BB+’ from ‘BBB-,’” which would have made it more costly for Rocket to borrow money.
Although both the Mr. Cooper and Redfin acquisitions are structured as all-stock deals, assuming Mr. Cooper and Redfin’s debt obligations will leave Rocket more highly leveraged.
Fitch originally estimated that the Mr. Cooper deal will more than double Rocket’s corporate leverage ratio, from 0.6x to 1.4x after the deal closes. Mr. Cooper’s corporate leverage ratio was 2.1x at the end of last year, and Fitch analysts said they expected to upgrade the company’s BB issuer rating.
But after weighing first quarter results and additional information received from Rocket, Fitch on May 7 lifted its negative rating watch, saying its analysts are now confident that Rocket’s corporate leverage will decline below the downgrade trigger of 1.0x within one year of the transaction closing.
At the time the deals were announced, the all-stock transactions valued Mr. Cooper at $9.4 billion, while Redfin was valued at $1.75 billion.
In reporting first-quarter earnings, Rocket executives said they expect the Redfin deal to close as soon as this quarter, which ends June 30, and that the Mr. Cooper acquisition remains on track to close by the end of the year.
Speaking at an investment conference in May, Rocket CEO Varun Krishna said over the past several years, Rocket has invested about $500 million in AI and other technology that will help the company scale its business without a proportionate increase in expenses after the merger.
He said Rocket’s acquisition of Redfin will help it achieve its goal of capturing 8 percent of the purchase loan market, and the Mr. Cooper deal will put Rocket in touch with more homeowners who might be ready to refinance.
Rocket wants to handle 20 percent of U.S. mortgage refinancings. After acquiring Mr. Cooper, Rocket will be collecting payments on $2.1 trillion in mortgage loans — about one in six U.S. mortgages. When those homeowners are ready to refinance, Rocket will have a leg up on “recapturing” their business, Krishna said.
“Having a relationship at the top of the funnel and with real estate agents allows you to build a stronger organic purchase business,” Krishna said of the Redfin deal. “Having a servicing book allows you to build an organic servicing recapture business.”
Editor’s note: This story has been updated to note that Fitch Ratings lifted its rating watch negative on Rocket Mortgage’s issuer default rating on May 7.
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