Moody’s considers upgrade of Mr. Cooper’s ratings after Rocket Companies’ acquisition plan

Investing.com -- Moody’s Ratings has placed Mr. Cooper Group Inc.’s corporate family rating (Ba3 CFR), along with the ratings of Nationstar Mortgage Holdings Inc., Nationstar Mortgage LLC, and Home Point Capital Inc. (all assumed by Mr. Cooper) under review for potential upgrade. This decision follows the announcement of a definitive agreement between Rocket Companies, Inc., parent of Rocket Mortgage, LLC, and Mr. Cooper for an all-stock acquisition.

Rocket Companies’ acquisition of Mr. Cooper includes the rights to service Mr. Cooper’s mortgage servicing rights (MSRs) which have an unpaid principal balance of $1.6 trillion. The closure of this transaction is expected to occur late this year or early next year.

Moody’s has placed Mr. Cooper’s ratings on review due to the expectation that the company’s creditors will benefit from this acquisition. The strong servicing business of Mr. Cooper is anticipated to complement Rocket Mortgage’s strength in origination, leading to synergies that will enhance the combined credit profile post-transaction.

In January, Moody’s affirmed Mr. Cooper’s ratings, reflecting the company’s strong US mortgage market franchise, solid earnings capacity, and sufficient liquidity. The outlook for Mr. Cooper was also changed from stable to positive, indicating an improvement in the company’s earnings capacity and resilience to unexpected losses.

Upon successful closure of the transaction, Moody’s expects to align the ratings of Mr. Cooper and its subsidiaries with those of Rocket Mortgage. The upgrade of Mr. Cooper’s ratings depends on the closure of the acquisition by Rocket Companies, given Rocket Mortgage’s higher creditworthiness.

However, if the acquisition does not take place, Mr. Cooper’s ratings could still be upgraded if the company continues to show strong profitability, maintains solid capitalization, and commits to increasing the level of committed warehouse capacity.

On the other hand, Moody’s could downgrade Mr. Cooper’s ratings if the company’s financial performance significantly deteriorates, capitalization falls, average net income to assets decreases, or if the company’s funding profile weakens. Material negative regulatory actions that impair Mr. Cooper’s franchise and ability to remain profitable could also lead to a ratings downgrade.

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