Walter Investment plans $765 million first- and second-lien debt

By Sara Rosenberg

New York, March 28 - Walter Investment Management Corp. has received a commitment for $765 million of new first- and second floating-rate debt to help fund its acquisition of GTCS Holdings LLC (Green Tree), company officials said in a conference call on Monday.

Credit Suisse Securities (USA) LLC and the Royal Bank of Scotland plc are the lead banks on the deal.

The debt is divided into a $500 million first-lien tranche and a $265 million second-lien tranche, both of which will be marketed to institutional investors, officials said.

The company is assuming a weighted average cost for the debt of just under 8%.

Under the agreement, Walter Investment is buying Green Tree, a St. Paul, Minn.-based fee-based business services company, which provides high-touch, third-party servicing of credit-sensitive consumer loans, in a transaction valued at $1.065 billion.

As part of the transaction, Walter Investment will assume about $20 million of existing Green Tree debt. The rest of the Green Tree's debt will be repaid.

In addition to the new debt, funds for the acquisition will come from cash on hand and the issuance of 1.8 million shares of common stock to the seller.

Following completion of the deal, leverage will be around 3.4 times.

The acquisition is expected to be significantly accretive to free cash and core earnings per share in 2011 and thereafter, and the majority of free cash flow will initially be directed to reduce outstanding debt and fund growth opportunities, officials continued in the call.

The companies' combined 2010 revenues were over $560 million, and revenue growth is targeted at 10% in 2011 and beyond. Combined 2010 adjusted EBITDA was $236 million and long-term EBITDA growth is targeted to match or exceed revenue growth.

Closing on the transaction is expected in the third quarter, subject to customary conditions, including receipt of governmental approvals and third-party consents.

Walter Investment is a Tampa, Fla.-based asset manager, mortgage servicer and mortgage portfolio owner specializing in less-than-prime, non-conforming and other credit-challenged mortgage assets. As a result of this transaction, the company will no longer qualify as a real estate investment trust.

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