PHH Shares Stabilize Ahead of 'Liquidity Update'

NEW YORK ( TheStreet) -- Shares of mortgage servicer PHH ( PHH) were recovering slightly on Tuesday after tumbling nearly 20% last week following a downgrade from Standard & Poor's.

The company is expected to release an investor communication on Tuesday that will provide an update on its liquidity and credit availability.

Last Wednesday, S&P lowered PHH's long-term credit rating and senior unsecured debt by two notches to BB minus, citing concern that it may be unable to repay $423 million in debt maturing in 2013. It also added the outlook for PHH was negative.

The rating action came after the New Jersey-based company was forced to cancel a $250-million bond offering after it struggled to attract investor interest, despite its relatively high yield. PHH later issued a $100 million bond at 9.25%, its highest-ever cost to borrow in the bond market, according to a Bloomberg report .

Investors are wary of investing in mortgage servicers despite attractive yields because of the mounting lawsuits against originators and servicers.

Analysts at KBW said in a report prior to the downgrade that a lower rating was unlikely to have a meaningful impact on the firm, as the "market already treats PHH like an unrated credit and its cost of issuance is high."

They also expressed confidence that the company will be able to meet its upcoming debt maturities. The report cites several actions that could be taken by the company to meet its funding obligations. PHH could issue debt backed by its mortgage servicing rights, which will likely come at a lower cost.

PHH could also reduce its need for debt altogether, according to the analysts, by shrinking its mortgage servicing rights, which it could do by selling its correspondent mortgage business and reducing its origination share. Selling part of the MSR would be another option.

--Written by Shanthi Bharatwaj in New York

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