Moody's Raises Outlook on Realogy (RLGY) to Positive; Sees Deleveraging in 2015-16

Moody's Investors Service ("Moody's") affirmed the credit ratings of Realogy Holdings (NYSE: RLGY), including the B2 Corporate Family rating ("CFR"), B2-PD Probability of Default rating ("PDR"), Ba3 senior secured 1st lien, B3 senior secured 1.5 lien and Caa1 senior unsecured ratings. The speculative grade liquidity rating was affirmed at SGL-2. The ratings outlook was revised to positive from stable.

RATINGS RATIONALE

"We expect Realogy to apply free cash flow to reduce debt in 2015 and 2016, leading to improved financial metrics, although acquisitions and uncertain existing home sales prospects could slow the pace," noted Edmond DeForest, Moody's Senior Credit Officer.

The rating affirmations reflect Moody's expectation of 2% to 4% annual revenue growth and the application of free cash flow of at least $300 million toward debt reduction and acquisitions. High cost fixed rate bonds become callable in 2015 and 2016, and refinancing or repaying them would impact both earnings and free cash flow positively. Moody's modest revenue growth expectations are limited by current residential real estate brokerage market conditions and risks, including limited inventory, strict mortgage finance criteria, declining participation of non-traditional cash buyers (private equity) and tepid improvement in employment and wages. Better than anticipated revenue growth driven by some combination of rising existing unit home sales and average prices, mortgage finance market improvements, the return of the first time buyer and broker count increases could lead to higher ratings. Liquidity is considered good.

The positive ratings outlook reflects Moody's anticipation that Debt to EBITDA (all financial metrics reflect Moody's standard adjustments) will improve to about 5 times over the next year from modest EBITDA growth and expected debt repayment. The rating outlook incorporates the expectation that Realogy may use a portion of its free cash flow to purchase brokerage operations or other related residential real estate businesses. An upgrade is possible if Moody's comes to expect revenue growth above 5% and free cash flow above $400 million to fuel accelerated debt repayment, leading to expectations for debt to EBITDA approaching 4.5 times and free cash flow to debt sustained above 8%. The ratings could be downgraded if revenue or free cash flow decline such that Moody's anticipates debt to EBITDA will remain above 6 times and free cash flow below $100 million.

Affirmations:

....Corporate Family Rating, B2

....Probability of Default Rating, B2-PD

....Speculative Grade Liquidity Rating, SGL-2

....Senior Secured 1st Lien, Ba3 (LGD2)

....Senior Secured 1.5 Lien, B3 (LGD5)

.Senior Unsecured, Caa1 (LGD5)

Outlook Actions:

....Outlook, Changed to Positive from Stable

The principal methodology used in this rating was Global Business & Consumer Service Industry Rating Methodology published in October 2010. Other methodologies used include Loss Given Default for Speculative-Grade Non-Financial Companies in the U.S., Canada and EMEA published in June 2009. Please see the Credit Policy page on www.moodys.com for a copy of these methodologies.

You May Also Be Interested In

• Brunswick (BC) Reports In-Line Q1 EPS, provides guidance
• CBIZ, Inc. (CBZ) Tops Q1 EPS by 5c; offers guidance
• TransUnion (TRU) Tops Q1 EPS by 11c, Beats on Revenue; Offers FY24 Guidance