Walter Investment Management upsizes proposed facility to $810 million

By Sara Rosenberg

New York, May 2 - Walter Investment Management Corp. increased the size of its proposed senior secured credit facility to $810 million from $795 million by lifting the five-year revolver to $45 million from $30 million, according to an 8-K filed with the Securities and Exchange Commission on Monday.

As before, the facility will also include a $500 million five-year first-lien term loan and a $265 million 51/2-year second-lien term loan.

The revolver and first-lien term loan are anticipated to carry pricing of Libor plus 525 basis points with a 1.5% Libor floor, and the second-lien term loan is anticipated to carry pricing of Libor plus 900 bps with a 1.5% Libor floor.

The revolver has a 75 bps unused fee.

Furthermore, the revolver is expected to be offered with a 100 bps upfront fee, the first-lien term loan is expected to have an original issue discount of 99 and the second-lien term loan is expected to be sold at a discount of 98.

The first-lien term loan includes 101 soft call protection for one year. The second-lien term loan is non-callable for one year, then at 103 in year two, 102 in year three and 101 in year four, the filing said.

Amortization on the first-lien term loan is 10% per year, with the balance due at maturity. There is no amortization on the second-lien loan.

Financial covenants under the credit agreement include total debt to EBITDA and minimum interest coverage.

Credit Suisse Securities (USA) LLC and RBS Securities Inc. are the joint bookrunners and lead arrangers on the deal, with Credit Suisse the administrative agent. Bank of America Merrill Lynch was added as a bookrunner and a co-documentation agent, and Morgan Stanley Senior Funding Inc. was added as a co-documentation agent.

Proceeds will be used to help fund the acquisition of GTCS Holdings LLC (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 credit facility, 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.

Upon announcing the acquisition, the company said that it would get a $500 million first-lien tranche and a $265 million second-lien tranche, both of which would be marketed to institutional investors, and that the assumed weighted average cost for the debt was just under 8%. There was no mention of a revolver.

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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