B.Riley has maintained a Buy rating and a $50.00 price target for Onity Group, Inc. (NYSE: ONIT). The firm's positive outlook is based on Onity Group's recent announcement detailing significant steps in its capital restructuring efforts.
The company is set to redeem at least $150 million of its high-interest 13.25% 2027 notes and has already repaid $23.5 million of its 7.875% PHH notes.
Onity Group plans to further reduce its leverage by refinancing the remaining 7.875% notes through a debt offering, with Oaktree acting as an anchor investor. This move is expected to bring the company's leverage down to well below 3 times, from 3.9 times as recorded in the second quarter of 2024. The firm highlighted Onity Group's strategy to sell its 15% interest in MAV to Oaktree for $49 million in net proceeds in the fourth quarter of 2024.
Additionally, Onity Group's management has confirmed its intent to purchase $55 million worth of mortgage assets from Waterfall Asset Management, which will generate $46 million in cash. The company has also completed a reverse securitization that provided $46.1 million in liquidity and sold an Agency MSR portfolio, reducing MSR debt by $73.4 million and creating $26.5 million in liquidity.
The refinancing terms with Oaktree stipulate that the proceeds must be used towards the redemption of the $150 million 2027 notes, with an option to redeem up to an extra $50 million.
In other recent news, Onity Group sold its 15% stake in MSR Asset Vehicle LLC (MAV) to Oaktree Capital Management, L.P. for an estimated $49 million. This sale is expected to conclude in the fourth quarter of 2024, with Onity remaining as the exclusive subservicer for the MAV portfolio.
Additionally, Onity plans to redeem at least $150 million of its senior secured notes, using proceeds from the MAV sale and other transactions. An upcoming acquisition of assets from Mortgage Assets Management, LLC, valued at approximately $55 million, is also in the pipeline. This acquisition is expected to immediately enhance earnings and cash flow.
InvestingPro Insights
Recent InvestingPro data aligns with B.Riley's positive outlook on Onity Group, Inc. (NYSE:ONIT). The company's market cap stands at $250.57 million, with a strong return of 36.85% over the last three months, reflecting investor confidence in its restructuring efforts. This performance is particularly noteworthy given the company's significant 12.78% return just in the last week.
InvestingPro Tips suggest that net income is expected to grow this year, and analysts predict the company will be profitable. These projections support the company's strategic moves to reduce leverage and improve its financial position. The company's high earnings multiple and P/E ratio of 151.98 indicate that investors are pricing in future growth potential, likely influenced by the ongoing capital restructuring.
It's worth noting that InvestingPro offers 11 additional tips for ONIT, providing investors with a more comprehensive analysis of the company's financial health and market position. These insights can be particularly valuable as Onity Group continues its debt reduction and refinancing efforts.
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