Walter Investment Management Corp. Chapter 11 Bankruptcy

Bankruptcy News

Walter Investment Management Corp. Files Prepackaged Chapter 11 Bankruptcy, Allocates $1.9 in DIP to Ditech and Reverse Mortgage Solutions

Posted on December 6, 2017 at 12:22 am by / 0


New York, Nov. 30, 2017— Walter Investment Management Corp. (“ Walter ” or the “Debtor”) filed a petition for Chapter 11 of the Bankruptcy Code on November 30, 2017 in the Southern District of New York under Case No. 17- 13446.[1]

Walter has employed the law firm of Weil, Gotshal & Manges LLP as general bankruptcy counsel, Houlihan Lokey Capital, Inc. as financial advisor, Alvarez & Marsal North America, LLC, as Restructuring financial consultant, PJT Partners LP as investment banker, and the firm of Prime Clerk LLC as the notice and claims agent.[2]

The Lenders have employed Kirkland and Ellis, LLP as legal counsel and FTI Consulting Inc. as financial advisor. The Senior Noteholders have employed Milbank, Tweed, Hadley & McCloy LLP as legal counsel and Moelis & Company LLC as financial advisor.[3] Davis Polk & Wardwell LLP is employed as counsel to prepetition administrative agent.[4]

Walter Investment Management Corp. (NYSE:WAC) is an independent mortgage banking firm originating mortgage loans and services reverse-mortgage loans.[5] It was established in 1958 as a financing business of Walter Energy, Inc., incorporated in 1997, and finally branched out from Walter Energy in a merger with Hanover Capital Mortgage Holdings, Inc., becoming a publicly traded company.[6] In 2010, Walter acquired Marix Servicing LLC, a specialty mortgage servicer, and in 2011 GTCS Holdings LLC, a leading mortgage loan servicer Government-Sponsored Enterprises (GSEs) and third party mortgage loans.[7] The Debtor is the parent company of 23 direct and indirect subsidiaries and as an integrated enterprise; its day-to-day operations are carried out by the two primary subsidiaries, Ditech Financial, LLC (“Ditech”) and Reverse Mortgage Solutions, Inc. (“RMS”).[8]

Ditech originates forward mortgage loans and services loans, while RMS focuses on servicing and subservicing reverse mortgage loans.[9] Although these are indirect wholly owned subsidiaries, Walter emphasizes that they are not part of the bankruptcy filing and remain unaffected.[10] As of the petition date, the debtor employed 4,130 intercompany employees.[11] The Debtor is based in Fort Washington, PA, and therefore subject to extensive regulation at the federal, state, and local level.[12] The Debtor incurs ongoing operational and legal costs for compliance with federal laws including the Fair Debt Collection Practices Act, RESPA, and certain provisions of the Dodd-Frank Act, including the Consumer Financial Protection Act.[13] As of the bankruptcy filing, Walter had an aggregate debt of $1.3 billion.[14]

The Debtor had to restructure and file chapter 11 bankruptcy after the acquisitions from 2010 through 2015 left it in debt and highly leveraged.[15] In addition to the above mentioned, the Debtor also acquired Security One Lending, Inc. in 2012, Residential Capital in 2013 and bulk servicing right acquisitions in 2014.[16] These along with organic expansion and “other business reasons,” such as dependence on capital markets, which rates and terms worked against the company, saw record losses during 2014, 2015, and 2016.[17]

After unsuccessful attempts to improve revenue, the Debtor commenced a turnover process starting with new leadership and modified business plans.[18] In the third quarter of 2016, the Debtor began hiring advisors and by December 2016, started negotiations with senior creditors who did not accept the proposed restructuring.[19] Since early summer of 2017, negotiations continued for months until Term Loan Holders of more than 95% of Term Loans and Senior Note Holders of more than 85% Senior Note Claims accepted Restructuring Support Agreements, which ultimately resulted in the Prepackaged Plan.[20] The Debtor also negotiated with an Ad Hoc Convertible Noteholders Group who wanted to pursue litigation against the Debtor, claiming that they had “causes of action that would not be discharged under the Prepacked Plan.”[21] The Debtor denied all allegations and to avoid delays to the chapter 11 bankruptcy filing, Walter had non-debtor subsidiary Ditech settle the claims for $3,300,000, which included the Claimants’ professional advisory firm employment fees. [22] The funds will remain in escrow until the Prepackaged Plan is confirmed and will not be released to claimants if the effective date does not occur before March 31, 2018, at which point the amount will be returned to Ditech (minus the professional fees).[23]

The Debtor seeks $1.9 billion in Debtor-In-Possession financing allocated to Ditech and RMS to refinance their current warehouse and servicer advance facilities.[24] Walter is committed to reducing its outstanding debt by $806 million through cancelation of Senior Notes and principal payments, and DIP as per the Prepackaged Plan.[25] Walter said it expects approval of the DIP financing by the court in their press release and included forward looking statements, stating that,

The actions taken today are intended to reduce the Company’s debt, strengthen its balance sheet and better enable Walter to focus on its business, including the growth of its origination and servicing businesses, new technology, innovation, and other areas that are critical to the Company’s success. The Company remains strongly committed to serving its customers by enabling their dreams of homeownership and caring for them throughout their homeownership lifecycle.[26]

The Debtor included case information and toll-free Restructuring hotline in their website accessible here.

 

Cristina Lipan is a bankruptcy attorney and partner with the law firm of Shipkevich PLLC. Cristina is admitted in the Southern and Eastern Districts of New York and regularly practices before the United States Bankruptcy Court. For more information on this matter, you can reach Cristina at  646-867-0098 or at  clipan@shipkevich.com

 


 

  • [1] Voluntary Petition for Non-Individuals Filing for Bankruptcy, Doc. No. 1, Case No. 17- 13446, S.D. NY. Filed November 30, 2017 (the “Petition”).
  • [2] Petition, III. Retention of Advisors (No. 17- 13446).
  • [3] Walter Investment Management Corp, Walter Investment Management Corp. Files Prepackaged Chapter 11 Plan to Continue Implementation of Its Previously Announced Financial Restructuring, November 30, 2017, http://www.walterinvestment.com/pdfs/Walter-Investment-Chapter-11-Release.pdf  (The “Press Release”).
  • [4] Disclosure Statement for Prepackaged Chapter 11 Plan of Reorganization of Walter Investment Management Corp. and The Affiliate Co-Plan Proponents, Doc. No. 12, Case No. 17- 13446, S.D. NY. Filed November 30, 2017 (The “Disclosure Statement”),   ¶ IV. A. 1.
  • [5] Disclosure Statement,  ¶ I. 3
  • [6] Disclosure Statement, ¶ II. A. 1.
  • [7] Disclosure Statement, ¶ II. A. 1.
  • [8] Disclosure Statement, ¶ I. 3.
  • [9] Disclosure Statement, ¶¶ II. A. 1.a.-1.c.
  • [10] Press Release; Disclosure Statement, ¶¶ II. B.
  • [11] Disclosure Statement, ¶ II. A. 2.
  • [12] Disclosure Statement, ¶ II. D.
  • [13] Disclosure Statement, ¶ II. D.
  • [14] Disclosure Statement, ¶ E. 1. (a)
  • [15] Disclosure Statement, ¶ III. A.
  • [16] Disclosure Statement, ¶ III. A.
  • [17] Disclosure Statement, ¶ III. A.
  • [18] Disclosure Statement, ¶ III. A.
  • [19] Disclosure Statement, ¶ III. A.
  • [20] Disclosure Statement, ¶ III. A.
  • [21] Declaration of David Coles Pursuant to Rule 1007-2 of Local Bankruptcy Rules for Southern District Of New York, Doc. No. 03, Case No. 17- 13446, S.D. NY. Filed November 30, 2017, (the “Declaration of David Coles”), ¶ 62.
  • [22] Declaration of David Coles ¶ 62.
  • [23] Declaration of David Coles ¶ 62.
  • [24] Disclosure Statement, ¶ IV. A. 1.
  • [25] Declaration of David Coles ¶ 7.
  • [26] Press Release
  • Image courtesy of American Advisors Group
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