Fitch puts Ocwen on review for downgrade

NEW YORK -- Fitch Ratings has put Ocwen Financial Corp. on watch for a possible downgrade after the company announced plans to buy Homeward Residential Holdings Inc.

Loan servicing company Ocwen said Wednesday that it is buying Homeward from a private equity firm in a $750 million deal to expand its servicing business. The deal is expected to close by the end of the year.

Fitch said Monday that it was concerned about the debt Ocwen will incur in the deal and that the acquisition could be hard to integrate, disrupting its business and cash flows. It also cited regulatory scrutiny of the mortgage business.

Ocwen is paying $588 million in cash and $162 million in convertible preferred stock for Homeward. Fitch said it doesn't expect Ocwen to borrow more to pay for the acquisition, but it will be assuming $2.3 billion of Homeward's advances to homeowners.

Fitch said Ocwen's "B+" junk-grade, long-term issuer default rating is now on rating watch for a downgrade.

Standard & Poor's Ratings Services last week backed its "B" rating on Ocwen, which is also a junk rating.

Shares of Atlanta-based Ocwen fell 47 cents, or 1.3 percent, to close at $36.28 Monday. Its shares are still up 25 percent since the Homeward deal was announced.