Item
1.01 Entry into a Definitive Material Agreement.
Transaction
Agreement
On
December 21, 2020, Ocwen Financial Corporation (the “Company”) entered into a definitive transaction agreement (the
“Transaction Agreement”) with Oaktree Real Estate Opportunities Fund VIII, L.P., Oaktree Opportunities Fund XI Holdings
(Delaware), L.P., Oaktree Opportunities Fund Xb Holdings (Delaware), L.P. and OCW MAV Holdings, LLC, a special purpose entity
managed by Oaktree Capital Management L.P. (“Oaktree”) (“OMH”) that provides for the Company and OMH to
form a strategic relationship for the purpose of investing in mortgage servicing rights pertaining to mortgage loans held or securitized
by Fannie Mae and Freddie Mac (“MSRs”), subject to certain terms and conditions set forth in the Transaction Agreement.
The Transaction Agreement includes customary representations, warranties, covenants and closing conditions, including receipt
of required regulatory approvals. The closing of the transactions contemplated by the Transaction Agreement (“Closing”)
is expected to occur in the first half of 2021.
Prior
to execution of the Transaction Agreement, OMH formed MAV Canopy HoldCo I, LLC, a Delaware limited liability company (“HoldCo”)
as a wholly owned subsidiary of OMH. Pursuant to the Transaction Agreement, OMH and the Company will cooperate to develop a strategy
to enable MSR Acquisition Vehicle LLC (“MAV”), a wholly owned subsidiary of HoldCo, to acquire MSRs. At Closing OMH
and the Company will hold 85% and 15%, respectively in HoldCo, provided that the Company will have a “promote” interest
that could result in the Company being entitled to receive greater than 15% of the distributable income derived from HoldCo if
certain thresholds are achieved. The parties have agreed to invest up to $250 million in HoldCo, contributed on a pro rata basis,
over a term of three years following Closing (subject to extension) for use in connection with eligible MSR investments and operating
expenses of HoldCo and MAV. From and after execution of the Transaction Agreement and until such time as the parties have contributed
the full amount of their aggregate $250 million capital contributions, the Company has an obligation to provide MAV with a “first
look” at opportunities presented to the Company or its affiliates to acquire Fannie Mae and Freddie Mac MSRs that meet certain
criteria.
The
Transaction Agreement may be terminated on or prior to Closing by mutual written agreement of the Company and OMH, and upon the
occurrence of certain conditions including if the Closing has not occurred by July 1, 2021, subject to the ability of either OMH
or the Company to extend such date for up to an additional sixty (60) days to obtain any outstanding required regulatory approvals.
Effective
as of Closing, the Company’s subsidiary, PHH Mortgage Corporation (“PMC”), and MAV, will enter into a subservicing
agreement (“Subservicing Agreement”) pursuant to which PMC will subservice the mortgage loans underlying MSRs held
by MAV. Such Subservicing Agreement contains customary representations, warranties, and covenants of PMC as subservicer and prior
servicer. In consideration for subservicing such mortgage loans, PMC will receive a per-loan subservicing fee and certain other
ancillary compensation as set forth in the Subservicing Agreement. The Subservicing Agreement will continue until terminated by
mutual agreement of the parties or termination in connection with a “for cause” event if certain conditions specified
in the Subservicing Agreement occur. If either party terminates the agreement for cause, the other party is required to pay certain
fees and costs as set forth in the agreement.
Securities
Purchase Agreement and Warrant Agreement
Upon
Closing and subject to other customary closing conditions, the Company agreed to sell to Opps OCW Holdings, LLC and ROF8 OCW MAV
PT, LLC (collectively, “Oaktree Purchaser”) up to 4.9%, at Oaktree Purchaser’s sole discretion, of the Company’s
outstanding common stock at the Closing at a price of $23.15 per share, and to issue to Oaktree Purchaser warrants to purchase
from the Company additional common stock equal to 3% of the Company’s outstanding common stock as of Closing at a purchase
price of $24.31 per share (subject to customary anti-dilution adjustments as well as adjustments in the event of below market
issuances or above market repurchases by the Company of common stock and equity securities), which warrants would expire four
years after their issue date. The Company also agreed to grant Oaktree Purchaser a pre-emptive right, effective from the date
of the Transaction Agreement until 90 days after Closing, to participate in certain future equity financings of the Company in
an amount that would allow Oaktree Purchaser to maintain its fully-diluted ownership percentage of the Company as a result of
its investment in the Company’s common stock and warrants. The Securities Purchase Agreement and the Warrant Agreement provide
that the ownership of Oaktree Purchaser and its affiliates in the Company’s common stock on an as-converted basis may not
exceed 19.9% at any time without receipt of shareholder approval subject to applicable NYSE listing rules. The Company and Oaktree
Purchaser agreed to a form of securities purchase agreement (the “Securities Purchase Agreement”) and warrant agreement
(“Warrant Agreement”) to be entered into at Closing to reflect these transactions.
Registration
Rights Agreement
The
Company also agreed to enter into a registration rights agreement with Oaktree Purchaser (the “Registration Rights Agreement”)
at Closing, pursuant to which the Company would agree to file a resale registration statement with the Securities and Exchange
Commission, within 18 months from the date of the registration rights agreement, covering the common stock issued under the Securities
Purchase Agreement and common stock issuable upon the exercise of the warrants. The Registration Rights Agreement would also contain
customary piggyback registration rights.
The
foregoing descriptions of the Transaction Agreement, the Securities Purchase Agreement, the Warrant Agreement and the Registration
Rights Agreement is a summary, is not complete, and is qualified in its entirety by reference to the full text of each of the
Transaction Agreement, the Securities Purchase Agreement, the Warrant Agreement and the Registration Rights Agreement which will
be filed as exhibits to the Company’s Annual Report on Form 10-K for the year ending December 31, 2020.