Walter Investment Management plans to buy the vastly larger home loan servicer Green Tree for $1.07 billion in a bold stroke that would significantly transform the Tampa-based company.
News of the deal, however, drew a cool reception from investors Monday. Shares in Walter Investment plummeted more than 11 percent to close at $17.08, down $2.20.
"We believe that with the acquisition of Green Tree, Walter Investment will be uniquely positioned to capture a significant share of the growing specialty mortgage services sector," said Mark J. O'Brien, Walter's chief executive.
Walter is paying a hefty price in terms of both adding to its debt and diluting its shares. Walter said it will issue about 1.8 million shares of common stock to current investors of privately held Green Tree, assume about $20 million of existing Green Tree debt and issue $765 million of new debt.
Green Tree Credit Solutions, based in St. Paul, Minn., is a large player in managing credit-sensitive consumer loans, with a $37 billion portfolio consisting of more than 745,000 loans. It employs about 1,900 people.
By comparison, Walter Investment is relatively small with just $1.8 billion in assets under management and annual revenues of about $180 million. It has about 340 employees. A spinoff of Walter Energy, Walter Investment kept its headquarters in Tampa when its parent company opted to relocate its main offices to Birmingham, Ala., to be closer to its coal mining operations. Created in April 2009, the investment firm's share price doubled to $14 shortly out of the gate and briefly broke $20 a share earlier this month.
Walter has specialized in managing what it describes as less-than-prime, nonconforming and other credit-challenged mortgage assets. In assuming Green Tree, Walter will no longer qualify as a real estate investment trust. The company's board of trustees has unanimously approved the deal, which is expected to close early in the third quarter.