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Business Services Industry

Fitch Affirms PHH's IDR at 'BBB+'; Rating Outlook Negative

Business Wire, Jan 10, 2008

NEW YORK -- Fitch Ratings has affirmed PHH Corporation's (NYSE: PHH) long-term Issuer Default Rating (IDR) of 'BBB+' and short-term IDR of 'F2'. Fitch has also removed all ratings from Rating Watch Evolving and has assigned a Negative Rating Outlook. Approximately $1.8 billion is affected by this action.

Ratings affirmed and removed from Rating Watch Evolving; Rating Outlook Negative assigned:

--Long-term IDR 'BBB+';

--Senior unsecured debt 'BBB+';

--Short-term IDR 'F2';

--Commercial Paper 'F2'.

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Fitch's action follows PHH's announcement that it had terminated the merger agreement between the company and General Electric Capital Corporation (GECC), thus removing ownership uncertainty. Also reflected in the current rating is the company's modest exposure to credit risk and ability to remain active in an illiquid secondary mortgage market. Fitch also acknowledges PHH's tighter underwriting guidelines and renewed focus on conforming mortgage production which should improve pipeline liquidity and reduce exposure to mark-to-market losses. Recent weakness in the company's mortgage unit has been offset by PHH's fleet leasing business, which has performed well. Fitch believes, however, that the mortgage industry remains challenging and highly uncertain. In addition, it remains to be seen whether the uncertainty created by the proposed merger with GECC will have a lingering impact on PHH's fleet customer base. PHH's heavy reliance on short-term, secured debt and Fitch's belief that the company's funding profile will improve is also factored into the current rating.

Although the company has reduced headcount and other expenses in an effort to position the mortgage unit for profitability in 2008, lower origination volume from continued broader mortgage market weakness would put pressure on the current rating. A ratings downgrade is likely should PHH's funding profile remain unchanged and residual effects from ownership uncertainty weigh on performance. Fitch will likely revisit the Rating Outlook in mid-2008 and look for PHH to reduce reliance on short-term, secured funding by lengthening the company's debt structure. Fitch will also consider PHH's ability to work through a difficult mortgage market and grow the private-label client base. As the industry consolidates, PHH could benefit from a greater number of financial institutions seeking to outsource their mortgage platforms. Fitch expects PHH's fleet leasing business to be a consistent earnings contributor going forward.

Fitch's rating definitions and the terms of use of such ratings are available on the agency's public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch's code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the 'Code of Conduct' section of this site.

Business Services Industry

Fitch Affirms PHH's IDR at 'BBB+'; Rating Outlook Negative

Business Wire, Jan 10, 2008

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