KBRA Affirms Issuer Ratings for Rithm Capital Corp and Subsidiary, NewRez LLC

KBRA affirms the Issuer rating of BB+ for Rithm Capital Corp. (NYSE: RITM; “Rithm” or “the company”) and also affirms the Issuer rating of BB+ for NewRez LLC (“NewRez”), an indirect, wholly-owned subsidiary of Rithm. The Outlook for the ratings is Stable. KBRA also withdraws the Issuer rating for Caliber Home Loans, Inc.

Key Credit Considerations

Rithm's, as well as operating subsidiary, NewRez's, respective Issuer ratings are supported by the company’s scale as a ‘Top 6’ mortgage servicer, appropriate consolidated capitalization – $6 billion of common equity (representing ~14% of assets at 1Q24) – a favorable liquidity and funding profile, and a largely solid operating performance history.

Rithm, including its large, singularly managed mortgage operating business, reflects seasoned, well-regarded management and operating teams. Even with its recent year business diversification – notably, Genesis Capital, a bridge construction lender acquired in 2021, Adoor (a SFR portfolio manager) and Sculptor Capital Management (“Sculptor”) acquired in November 2023 – the mortgage operating company maintains the most significant capital allocation and is expected to remain the principal driver of earnings trends over the near-term.

Importantly, in response (we believe) to the challenges faced by the Mortgage REIT industry during the onset of the pandemic in March 2020, Rithm now reflects a more durable funding profile; one which has focused on term borrowings and minimizing financing with daily MTM except for most liquid collateral, and maintains higher unrestricted cash balances; recently >$1 billion, which remains a favorable aspect of the company’s more conservative balance sheet management.

Rithm’s interest rate hedging strategy has historically been conducted with a holistic perspective on investment assets. While a refined MSR hedging program – given an almost $9 billion investment in the asset – would be viewed favorably, recent year, mortgage asset hedge positions, have been broadly effective.

Rating Sensitivities

Consistent operating performance, including a growing earnings contribution from Sculptor, could lead to positive rating momentum over time. Operating challenges and / or more aggressive capital management could negatively impact ratings.

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Methodologies