Credit
rating
agency

Fitch

announced
this
week
that
its
long-term
issuer
default
rating
for


Finance
of
America
was
downgraded
to
“restricted
default”
status
following
its
recently
publicized

debt
exchange
plan.
The
rating
was
then
upgraded
to
“CCC”
following
the
completion
of
the
exchange
agreement.

Fitch
explained
its
rationale
for
the
whipsaw
of
ratings
by
characterizing
FOA’s
move
as
a
“distressed
debt
exchange.”
Fitch
said
the
exchange
“imposes
a
material
reduction
in
terms
compared
with
the
existing
contractual
terms
and
is
being
done
to
avoid
an
otherwise
likely
eventual
default.”

The
reduction
in
terms
are
“reflected
in
the
extension
of
the
original
maturity
of
the
unsecured
debt
via
the
exchange
into
new
notes,
and
the
elimination
of
substantially
all
restrictive
covenants
and
events
of
default
on
the
remaining
unsecured
notes,”
the
agency
said.

Without
the
exchange
agreement,
the
company
would
be
hampered
by
“weak
operating
performance,
limited
liquidity
and
[a]
highly
encumbered
balance
sheet”
that
would
make
it
unable
to
meet
the
2025
maturity
date
of
its
original
agreement.
But
the
exchange
agreement,
recently
amended
and

claiming
a
high
level
of
participation,
changes
the
equation,
according
to
Fitch.

“The
subsequent
upgrade
of
the
ratings
reflects
FOA’s
improved
financial
and
operating
flexibility
following
the
debt
exchange
as
refinancing
risk
has
been
reduced
and
near-term
liquidity
needs
are
limited
given
the
extension
of
debt
maturities
to
2026,”
Fitch
said.
“FOA’s
ratings
remain
supported
by
its
established
market
position
within
the
reverse
mortgage
sector
and
experienced
senior
management
team.”

But
FOA,
the
reverse
mortgage
industry’s
leading
lender,
still
maintains
a
“weak
liquidity
profile”
that
constrains
its
ratings,
Fitch
added.
The
agency
projects
that
FOA’s
earnings
will
be
improved
by
a
stronger
interest
rate
environment.

“Fitch
believes
FOA’s
profitability
should
benefit
from
a
reduction
in
interest
rates,
as
this
will
likely
drive
higher
mortgage
origination
volumes
and
improve
the
valuation
of
the
company’s
residual
investments
in
its
securitizations,”
according
to
its
announcement.

Additionally,
its
transition
to
a
“monoline
reverse
mortgage
lender”
after
closing
down
its
forward
mortgage
arm
will
also
prove
beneficial.
Fitch
said
the
transition
has
had
a
positive
impact
on
FOA’s
operating
costs.

An
FOA
spokesperson
told

HousingWire’s
Reverse
Mortgage
Daily
(RMD)
that
it
anticipated
these
actions
from
Fitch.
FOA
is
set
to
announce
its
third-quarter
earnings
on
Wednesday.

“‘The
Fitch
rating
change
was
expected
and,
consistent
with
similar
debt
exchanges
in
the
market
rated
by
Fitch,
FOA’s
debt
rating
has
been
upgraded
to
where
it
was
prior
to
the
announcement
of
the
debt
exchange
support
agreement
in
June
2024,”
the
spokesperson
said.

In
June,
FOA

announced
the
debt
exchange
agreement
that
involves
new,
secured
debt
that
will
come
due
beyond
the
original
2025
maturity
date.
It
amended
that
agreement
in
September
by
exchanging
the
current,
unsecured
notes
(due
in
2025
with
an
interest
rate
of
7.875%)
for
one
of
two
new
bond
options.
The
first
offers
the
same
interest
rate
and
is
due
in
2026
(with
a
company
option
to
extend
into
2027),
while
the
second
has
a
10%
interest
rate
and
comes
due
in
2029.

The
news
from
Fitch
follows
an
announcement
from


Morningstar
DBRS,
which

affirmed
FOA’s
previously
obtained
“good”
reverse
mortgage
originator
ranking.

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