Kingstown Capital Files 13D on Home Loan Servicing Solutions

Michael Blitzer's hedge fund Kingstown Capital has filed a 13D with the SEC regarding shares of Home Loan Servicing Solutions (HLSS).  Per the filing, Kingstown now owns 5.1% of the company with 3.6 million shares.

This is a newly disclosed position for the firm and their 13D indicates that they oppose the announced transaction between the company and New Residential Investment Corp (NRZ).

They write that they "do not believe a transaction at GAAP book value adequately compensates the Issuer's shareholders for the value of its assets, which have historically traded between 1.2x - 1.3x book value according to the Issuer’s September 2014 Investor Presentation.  The Reporting Persons further note the overly conservative nature of the assumptions underlying the Issuer’s book value, including (i) an assumed weighted average prepayment rate of 18% versus the actual 10.3% for the nine months ending September 30, 2014, (ii) an assumed weighted average delinquency rate of 25% versus actual non-performing residential assets of 18.5% of UPB as of September 30, 2014, (iii) an assumed weighted average discount rate of 19% versus a 10% discount rate used by NRZ to value its own MSR assets, and (iv) the exclusion of any value from deferred servicing fees, which were $470M at year-end 2013.      

Kingstown went on to write:

"The Reporting Persons believe that adjusting these assumptions to reflect recently observed rates and the discounted value of deferred servicing fees, among other factors, could add more than $7 per share of additional value above the stated book value.  Notwithstanding a higher offer from NRZ or others, the Reporting Persons believe the most value-enhancing strategies for the Issuer are continuing its servicing relationship with Ocwen Financial Corporation, completing refinancing initiatives recently highlighted by management and executing the Issuer’s growth initiatives as its financing and operations normalize in due course.  The Reporting Persons plan to communicate with the Issuer’s shareholders, management and Board of Directors (the “Board”) as well as other third parties to oppose the current transaction and may present other proposals that offer the Issuer’s shareholders more value. "

Per their 13D, Kingstown was buying HLSS shares throughout January and February at prices ranging from $12.xx to $18.xx.

It's also worth noting that Kingstown holds a large position in Bill Erbey's company Ocwen Financial (OCN) as well (9.5% of the company according to a February 13D filing.) 

They originally started an OCN position in the third quarter of 2014 and were buying on the way down as the company came under siege from the New York Department of Financial Services and regulator Benjamin Lawsky.  This investigation ended with OCN paying a hefty fine and Erbey leaving the company.  Kingstown's 13F filing that details their 2014 year-end portfolio indicated they sold entirely out of their OCN stake.  Then, in a new 13D filing in February, it shows that they started buying OCN again after shares had dropped 50%.

This is worth highlighting due to the fact that both HLSS and OCN have Bill Erbey in common; both are part of the halo of companies he assembled in the mortgage servicing space as HLSS was spun-off from Ocwen a few years ago.  As such, Kingstown's previous work on OCN likely came into play on their HLSS position given the close ties between the companies.

Per Google Finance, HLSS is "a development-stage company. The Company was formed to acquire mortgage servicing assets consisting of mortgage servicing rights, rights to fees and other income from servicing mortgage loans, and associated servicing advances. The Company operates its business as a single reportable segment. HLSS primary source of income is interest income on the Notes receivable – Rights to MSRs. HLSS do not originate mortgage loans, and as a result are not subject to the risk of loss related to the origination of mortgage loans. The Company engaged Ocwen, a residential mortgage loan servicer, to service the mortgage loans underlying HLSS Mortgage Servicing Assets .The Company has not and do not intend to develop its own mortgage servicing platform but instead will rely on high quality third-party residential mortgage loan servicers."

Lee Cooperman Trims SandRidge Energy & New Residential Stakes; Adds to THL Credit

Omega Advisors' Lee Cooperman has filed a myriad of amended 13G's with the SEC as of late.  We covered some of his recent portfolio activity here.  In other recent moves, Cooperman was out trimming 2 stakes, and adding to another.


Trims SandRidge Energy

First, Omega Advisors has reduced its position in SandRidge Energy (SD) by over 13.3 million shares since the end of the third quarter.  Per the 13G filed with the SEC, Cooperman now owns just over 32.1 million shares.  This was made due to activity on December 31st.

Per Google Finance, SandRidge Energy is "an oil and natural gas company. The Company focuses on exploration and production activities in the Mid-Continent region of the United States. The Company also operates businesses and infrastructure systems, including gas gathering and processing facilities, marketing operations, a saltwater disposal system, an electrical transmission system and a drilling rig and related oil field services business."


Cuts New Residential Stake

Next, the hedge fund manager also cut his exposure to New Residentail Investment Corp (NRZ).  After selling over 3.8 million shares, he's left owning over 7.97 million shares.  The filing was also made due to activity on December 31st.

Per Google Finance, New Residential Investment Corp is "a real estate investment trust. The Company focuses on investing in, and actively managing, investments related to residential real estate. The Company is managed by an affiliate of Fortress Investment Group LLC, a global investment management. The Company primarily target investments in excess mortgage servicing rights, residential mortgage backed securities, residential mortgage loans and other related investments."


Adds To THL Credit Position

Last, Cooperman also disclosed he has added to his THL Credit (TCRD) position.  After buying over 1.1 million more shares, he now owns over 2.11 million shares of the company.  The 13G was filed due to activity on December 31st.

Per Google Finance, THL Credit is "a non-diversified, closed-end management investment company. It operates as a business development company. The Company’s investment objective is to generate both current income and capital appreciation, primarily through investments in privately negotiated debt and equity securities of middle market companies. The Company is a direct lender to middle market companies and invest in subordinated, or mezzanine, debt and second lien secured debt, which may include an associated equity component such as warrants, preferred stock or other similar securities."

Don't forget you can see the rest of Cooperman's recent portfolio activity here.

Lee Cooperman Adds to New Residential Investment Corp Stake

Lee Cooperman's Omega Advisors has filed a 13G with the SEC regarding a 6% ownership stake in New Residential Investment (NRZ) with over 15.2 million shares. 

This marks an increase in their position size of over 9.5 million shares since the end of the third quarter.  The filing was required due to activity on January 30th.

NRZ was spun off from Newcastle Investment Corp (NCT), a position Cooperman also owns, back in May of 2013.

Per Google Finance, New Residential Investment Corp is "incorporated on September 26, 2013, is a real estate investment trust. The Company focuses on investing in, and actively managing, investments related to residential real estate. The Company is managed by an affiliate of Fortress Investment Group LLC, a global investment management. The Company primarily target investments in excess mortgage servicing rights, residential mortgage backed securities, residential mortgage loans and other related investments."

You can view other portfolio activity from Lee Cooperman here.