PHH Corp. To Sell Fleet Management Business To Element Financial For $1.4 Bln

(RTTNews) - PHH Corp. (PHH), a provider of business process management services for the mortgage and fleet industries, said Monday that it has agreed to sell its fleet management services business, PHH Arval, to Canada-based equipment finance company Element Financial Corp. (EFN.TO) for about $1.40 billion in cash.

Under the terms of the deal, the transaction is structured as a stock-for-cash transaction, but will be treated as an asset sale for tax purposes under the US Internal Revenue Code. The deal is expected to close on or before July 31, 2014, subject to regulatory, financing and other contractual consents and amendments.

Mount Laurel, New Jersey-based PHH expects to record an after-tax gain of about $250 million to $300 million, and also expects net proceeds after taxes and transaction expenses in a range of about $750 million to $800 million.

PHH intends to use net proceeds from the sale of PHH Arval to re-engineer its operations, support infrastructure and make selective growth investments in its Mortgage business, return capital to shareholders, and reduce its unsecured debt levels. PHH said it will provide additional details regarding its capital allocation plans after the closing of the Fleet sale.

Element will assume all of PHH Arval's fleet management operations in North America, including its office in Sparks, Maryland, which is expected to become Element's Fleet headquarters.

Effective upon closing of the deal, PHH and Element will enter into transition services agreements, with each party providing certain transitional support services to the other. The companies expect the duration of transition services and separation activities to be up to nine months after closing to ensure a smooth transition.

Following the sale, PHH will continue to operate its Mortgage Production and Mortgage Servicing segments to provide end-to-end mortgage solutions to leading financial institutions and real estate partners.

Element Financial said in a separate statement that it will raise $1.1 billion of new capital in conjunction with the acquisition. The company plans to sell on a bought deal basis, $750 million of subscription receipts, $250 million of extendible convertible unsecured subordinated debentures and $100 million cumulative 5-year reset preferred shares.

Element financial also said it has obtained lender commitments to amend and restate its revolving credit agreement for aggregate commitment of $1 billion. The company has obtained a bridge financing commitment of $1.36 billion from Bank of Montreal to finance the acquisition.

Steven Hudson, Element's Chairman and Chief Executive Officer said, "The acquisition of PHH Corporation's fleet management business adds more than $4.6 billion in assets and $1.7 billion in annual origination volumes to our current operations making Element Financial Corporation one of the leading equipment finance companies in North America."

Element Financial expects the acquisition to deliver accretion of more than 10 percent in 2015 and 2016 on an adjusted operating and cash earnings per share basis.

In mid-May, PHH had said it was engaged in talks regarding a potential sale of PHH Arval.

While reporting its financial results for the fourth quarter in February, PHH said it was exploring ways to maximize shareholder value through the separation of its fleet business, mortgage business, or both. At that time, the company said it has retained J.P. Morgan Securities LLC, Centerview Partners LLC and Kirkland & Ellis LLP to assist in the process.

PHH closed Monday's trading at $25.25, down $0.22 or 0.86 percent on a volume of 2.55 million shares. In after-hours, the stock further declined $0.05 or 0.20 percent to $25.20.

EFN.TO closed Monday's trading on the Toronto stock exchange at C$13.30, down C$0.35 or 2.56 percent on a volume of 930,316 shares.