This week, Planet Financial Group, the parent company of Planet Home Lending, achieved a significant milestone by raising $475 million through the issuance of senior unsecured notes.
This amount not only exceeded their original target of $400 million but also showcased robust investor demand.
Details of the Debt Offering
The newly issued notes come with a 10.5% interest rate and will mature in December 2029.
The funds from this offering will primarily be used to pay down existing senior secured debt, strengthening the company’s financial position.
Michael Dubeck, the president and CEO of Planet Financial Group, expressed enthusiasm about the overwhelming response from investors.
He interpreted the high volume of orders as a vote of confidence in the company’s diverse business model, strong risk management practices, and long-term strategic vision.
This issuance marks Planet’s inaugural entry into the public high-yield market, which is anticipated to boost its liquidity moving forward.
Fitch Ratings and Market Position
In tandem with this successful offering, Fitch Ratings issued a long-term issuer default rating of B+ for Planet, assigning a stable outlook.
This rating reflects the company’s solid yet growing status as both a correspondent and retail lender.
Additionally, it acknowledges Planet’s established presence in agency and government servicing, along with its subservicing capabilities.
Established in 2007 and based in Connecticut, Planet Financial Group has seen notable growth, boasting 236 sponsored loan officers and 47 active branches as reported last Friday by the Nationwide Multistate Licensing System.
Despite issuing approximately $13.5 billion in mortgage originations from January to September—a 33.7% decrease compared to the previous year—Planet remained the 23rd-largest mortgage lender in the country during that period.
Furthermore, the company expanded its operations in August by acquiring assets from Axia Home Loans.
Challenges and Future Outlook
Fitch Ratings recognized Planet as the seventh-largest correspondent lender and the 22nd-largest nonbank retail lender in the same timeframe.
While the agency acknowledged Planet’s potential for growth, it also highlighted challenges, including competitive pressures within the correspondent lending channel and the company’s smaller scale in comparison to larger industry competitors, both of which influenced its rating.
On the servicing side, Planet reported owning mortgage servicing rights (MSRs) valued at $97.5 billion as of September.
Despite these assets, Fitch noted concerns such as higher leverage and a smaller scale relative to competitors.
Rising prepayment rates and falling interest rates could potentially impact their valuation marks.
Nevertheless, the company implements conservative hedging practices and benefits from a lower average coupon rate, which may help mitigate refinancing risks.
Fitch anticipates that the recent debt issuance will result in unsecured debt rising to 24.5% of Planet’s total debt by the third quarter of 2024.
This shift is expected to reduce asset encumbrance and enhance the company’s financial stability in challenging market conditions.
The trend of leveraging unsecured debt is not unique to Planet.
Other mortgage lenders, both public and private, are also tapping into these markets to fortify their financial standing.
For instance, earlier this month, the parent company of United Wholesale Mortgage successfully raised $800 million through an unsecured debt offering, exceeding their original goal by 60%.
This offering, featuring senior notes due in 2030 and priced at 6.625%, was directed toward qualified investors.
Additionally, notable companies like Freedom Mortgage, loanDepot, Mr. Cooper, and PennyMac have pursued similar debt issuance strategies over the past two years, capitalizing on favorable refinancing conditions and extending their debt terms.
Source: Housingwire