Mr Cooper Group Inc (COOP)

[iPrelude]

WMIH Corp. (WMIH) is a corporation duly organized and existing under the laws of the State of Delaware. On May 11, 2015, WMIH merged with its parent corporation, WMI Holdings Corp., a Washington corporation (“WMIHC”), with WMIH as the surviving corporation in the merger (the “Merger”). The Merger occurred as part of the reincorporation of WMIHC from the State of Washington to the State of Delaware effective May 11, 2015 (the “Reincorporation Date”).

WMIH, formerly known as WMIHC and Washington Mutual, Inc. (“WMI”), is the direct parent of WM Mortgage Reinsurance Company, Inc. (“WMMRC”) and WMI Investment Corp. (“WMIIC”) which has no assets or liabilities. Since emergence from bankruptcy on March 19, 2012 (the “Effective Date”), The company had limited operations other than WMMRC’s legacy reinsurance business, which is being operated in runoff mode. The company continue to operate WMMRC’s business in runoff mode and its primary strategic objective is to consummate one or more acquisitions of an operating business, either through a merger, purchase, business combination or other form of acquisition, and grow its business.1

The company continue to seek, identify and evaluate acquisition opportunities of varying sizes across an array of industries for the purpose of facilitating an acquisition by WMIH of one or more operating businesses. Its management team meets regularly with the Corporate Strategy and Development Committee (the “CS&D Committee”) of its Board of Directors (the “Board or “Board of Directors”) to discuss and evaluate potential acquisition targets. During the six months ended June 30, 2017 and the year ended December 31, 2016, the CS&D Committee met formally and informally numerous times to assess various opportunities. The company has focused primarily on acquisition targets in the financial services industry, including targets with consumer finance, commercial finance, specialty finance, leasing and insurance operations. The company also may review potential targets in other industries, such as information technology, industrials, business services, healthcare and other sectors.

On January 5, 2015, The company announced that WMIH had completed an offering (the “Series B Preferred Stock Financing”) of 600,000 shares of its 3% Series B Convertible Preferred Stock, par value $0.00001, liquidation preference $1,000 per share (the “Series B Preferred Stock”) in the amount of aggregate gross proceeds equal to $600 million. Net proceeds of $598.5 million were deposited into an escrow account and have been, and will be, released from escrow to it from time to time in amounts needed to finance its efforts to explore and fund, in whole or in part, certain acquisitions, whether completed or not, including reasonable attorney fees and expenses, accounting expenses, due diligence and financial advisor fees and expenses. For further information on the Series B Preferred Stock Financing, see Note 9: Capital Stock and Derivative Instruments, to the condensed consolidated financial statements in Item 1 of Part I of this Quarterly Report on Form 10-Q.

WMIH will continue to evaluate acquisition opportunities and work with its strategic partner, an affiliate of KKR & CO. L.P. (together with its affiliates, “KKR”), to identify, consider and evaluate potential mergers, acquisitions, business combinations and other strategic opportunities. As of June 30, 2017, and through the date of the filing of this Form 10-Q, The company had not consummated an acquisition and it can provide no assurances that It will successfully consummate a transaction and, if so, on what terms.

If the company do not consummate a Qualified Acquisition (as defined below), or take other actions to extend the redemption date applicable to, or to refinance or modify the terms of, the Series B Preferred Stock, then the company is obligated to redeem the Series B Preferred Stock on January 5, 2018 (the “Series B Redemption Date”) for cash, utilizing the remaining proceeds from the Series B Preferred Stock. While the company remain focused on identifying and consummating a Qualified Acquisition before the Series B Redemption Date, there can be no assurances that it will be able to do so, on terms favorable to it, or at all. A mandatory redemption of the Series B Preferred Stock would substantially deplete its cash on hand to continue seeking acquisitions and would likely have a material adverse effect on its financial condition and business operations. Relatedly, under those circumstances, The company also may not have access to alternative sources of capital or liquidity. “Qualified Acquisition” means an Acquisition (as defined below) that, taken together, with prior Acquisitions (if any), collectively utilizes aggregate net proceeds of the Series B Preferred Stock Financing of $450 million. “Acquisition” means any acquisition by the Company (or any of its direct or indirect wholly-owned subsidiaries), in a single transaction or a series of transactions, whether by purchase, merger or otherwise, of all or substantially all of the assets of, or equity interests in, or a business line, unit or division of, any person.

In connection with the foregoing, The company have established a Finance Committee of the Board of Directors, comprised of independent directors, that is authorized, among other things, information to review the long-term financial structure, objectives and policies of the Company, and to make recommendations to the Board regarding such structure, objectives and policies, if appropriate, (ii) to evaluate the financing requirements of the Company and management’s proposed financing and refinancing plans and to recommend to the Board those actions, authorizations, filings and applications necessary and appropriate to enable management to execute such plans and (iii) to consider and make recommendations to the Board regarding the terms, timing, amount and other material factors related to the possible restructuring or amendment of the Company’s outstanding equity securities, issuance of new equity securities in one or more private or public transactions, redemption of outstanding securities, or other transactions related to the Company’s outstanding securities, capital structure or fundraising to meet the Company’s future liquidity and capital resources needs (any such transaction, a “Financing”), in each case as the Finance Committee deems appropriate. There can be no assurance that any financing or refinancing plans will be pursued or consummated, or if so, on what terms.

In connection with its evaluation of potential Financing alternatives, the Finance Committee expects to consider various factors, including but not limited to, financial terms and costs, potential dilution of existing shareholders, impact on the Company’s liquidity and capital position, the term of any Financing, the cash proceeds available to the Company to fund potential acquisitions, the impact of any Financing (including any redemption of the Series B Preferred Stock) on the Company’s tax attributes under Section 382 of the Code, and the timing and certainty of closing of any Financing.

With respect to its current operations, the Company currently operates a single business through its subsidiary, WMMRC, whose sole activity is the reinsurance of mortgage insurance policies. WMMRC has been operated in runoff mode since September 26, 2008. Since that date, WMMRC has not underwritten any new policies (and by extension any new risk). WMMRC, through predecessor companies, began reinsuring risks in 1997 and continued reinsuring risks through September 25, 2008.

All of WMMRC’s reinsurance agreements are on an excess of loss basis, except for a reinsurance treaty with Genworth Mortgage Insurance Corporation during 2008, which is reinsured on a 50% quota share basis. Pursuant to the excess of loss reinsurance treaties, WMMRC reinsures a second loss layer which ranges from 5% to 10% of the risk in force in excess of the primary mortgage insurer’s first loss percentages which range from 4% to 5%. Each calendar year, or book year, is treated separately from other years when calculating losses. In return for accepting a portion of the risk, WMMRC receives, net of ceding commission, a percentage of the premium that ranges from 25% to 40%.

WMMRC commuted three reinsurance agreements, one each, in 2009, 2012 and 2014, respectively, and the related trust assets were distributed in accordance with the commutation agreements. The company also may seek opportunities to extract excess capital through commutation of one or more of WMMRC’s remaining reinsurance agreements or otherwise, with a view toward accelerating the distribution of trust assets in excess of the amounts needed to pay claims.

Beginning in 2006, the U.S. housing market and related credit markets experienced a multi-year downturn. During that period, housing prices declined materially, credit guidelines tightened, delays in mortgage servicing and foreclosure activities occurred, and deterioration in the credit performance of mortgage loans occurred. In addition, the macro-economic environment during that period demonstrated limited economic growth, stubbornly high unemployment, and limited median wage gains. Beginning in 2012, home prices began to rise again. The current outlook for the housing market is optimistic with low interest rates, steady employment growth, increased household formation rates and less restrictive credit conditions. Nevertheless, WMMRC’s operating environment remains somewhat uncertain as much of its results over the next two years will be directly affected by the inventory of pending defaulted mortgages at its ceding companies arising primarily from mortgages originated in calendar years 2007 and 2008. However, its financial exposure to that environment has been steadily reduced as the remaining net aggregate risk exposure has decreased due to the runoff nature of its operations.

References
^ https://fintel.io/doc/sec-wmih-wmih-10q-2018-july-27-17948

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