Realogy Seeks to Lower Loan Costs as Housing Market Recovers
The firm is planning to reduce how much it pays on a $1.9 billion term loan that it repriced in February, according to Anthony Hull, the chief financial officer. It currently pays 3.5 percentage points more than the London interbank offered rate, with a 1 percent minimum on the benchmark, according to data compiled by Bloomberg.
A recovery in the housing market, which has led to Realogy’s first profitable quarter in three years, will allow the Madison, New Jersey-based company to continue cutting its debt costs, Hull said in a July 24 telephone interview. Realogy has decreased its total interest expense to $255 million from $672 million a year ago, he said.
“We can reprice our term loan next March, so we’d probably look at that opportunity to reduce our overall interest costs at that point,” Hull said.
Realogy’s $325 million of 9 percent notes due January 2020 were quoted at 114.8 cents on the dollar to yield 6.18 percent today, according to prices compiled by Bloomberg.
New home sales gained 8.3 percent to an annualized pace of 497,000 in June, the highest level since May 2008, the Commerce Department said July 24. Existing home sales fell 1.2 percent in June to a 5.08 million annualized rate, a level 15.2 percent higher than a year ago, the National Association of Realtors reported July 22.
Realogy’s net income increased to $84 million in the three months ended June 30, the first time it’s reported a profit since the second quarter of 2010, Bloomberg data show. The real-estate brokerage raised $1.08 billion in an initial public offering in October, using the proceeds to help reduce debt.
Realogy’s total obligations relative to its earnings before interest, taxes, depreciation and amortization rose to 16 times in 2011, Bloomberg data show. Moody’s Investors Service increased the company’s rating to B3 in December, citing leverage that is making progress to fall below 7 times in the next 18 months, according to a Dec. 10 report.
The company is seeking to reduce its leverage ratio to as little as 3 times and use free cash flow to retire more debt and to increase Ebitda to $1 billion from $523 million in 2012, Hull said. Realogy may reach $915.5 million in annual Ebitda by the end of 2014, according to the median of six analyst estimates compiled by Bloomberg.
“It really depends what happens to existing home sales and prices over the next 12-36 months as to how fast our Ebitda gets to those levels,” said Hull.
Realogy may repay its $700 million of 7.875 percent notes when they become callable at 103.9 cents on the dollar in February 2015, Hull said. Those securities were quoted at 109.1 cents on July 26, according to prices compiled by Bloomberg.
Leon Black’s Apollo Global Management LLC (APO) took Realogy private in April 2007 with $920 million of its own money as part of an $8.3 billion leveraged buyout, just before the housing downturn. Apollo returned twice its investment on the six-year-old transaction after selling 25.1 million shares in the company for $47.57 a share, or $1.2 billion, in a secondary public offering July 16, Realogy said in a July 18 regulatory filing.
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