-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, AjPmRk5CZN0NmWh9gq9Tts5obh9v0+3NteXRbSPEYNIW6DQbVx7HWPlI0mOLd1mu lC0PLNP4mbzDVd2xH7ncpA== 0000902664-07-002508.txt : 20070810 0000902664-07-002508.hdr.sgml : 20070810 20070810120350 ACCESSION NUMBER: 0000902664-07-002508 CONFORMED SUBMISSION TYPE: SC 13D/A PUBLIC DOCUMENT COUNT: 3 FILED AS OF DATE: 20070810 DATE AS OF CHANGE: 20070810 SUBJECT COMPANY: COMPANY DATA: COMPANY CONFORMED NAME: PHH CORP CENTRAL INDEX KEY: 0000077776 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS BUSINESS CREDIT INSTITUTION [6159] IRS NUMBER: 520551284 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: SC 13D/A SEC ACT: 1934 Act SEC FILE NUMBER: 005-13543 FILM NUMBER: 071043805 BUSINESS ADDRESS: STREET 1: 3000 LEADENHALL ROAD CITY: MT. LAUREL STATE: NJ ZIP: 08054 BUSINESS PHONE: 856-917-1744 MAIL ADDRESS: STREET 1: 3000 LEADENHALL ROAD CITY: MT. LAUREL STATE: NJ ZIP: 08054 FORMER COMPANY: FORMER CONFORMED NAME: PHH GROUP INC DATE OF NAME CHANGE: 19880913 FORMER COMPANY: FORMER CONFORMED NAME: PETERSON HOWELL & HEATHER INC DATE OF NAME CHANGE: 19790121 FILED BY: COMPANY DATA: COMPANY CONFORMED NAME: PENNANT CAPITAL MANAGEMENT LLC CENTRAL INDEX KEY: 0001168664 IRS NUMBER: 000000000 FILING VALUES: FORM TYPE: SC 13D/A BUSINESS ADDRESS: STREET 1: 40 MAIN ST CITY: CHATHAM STATE: NY ZIP: 07928 BUSINESS PHONE: 9737011100 MAIL ADDRESS: STREET 1: 40 MAIN ST CITY: CHATHAM STATE: NY ZIP: 07928 FORMER COMPANY: FORMER CONFORMED NAME: PENNANT CAPITAL MANAGEMENT INC DATE OF NAME CHANGE: 20020307 SC 13D/A 1 sc13da.txt PENNANT CAPITAL MANAGEMENT LLC UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 ------------- SCHEDULE 13D/A (Rule 13d-101) INFORMATION TO BE INCLUDED IN STATEMENTS FILED PURSUANT TO RULE 13d-1(a) AND AMENDMENTS THERETO FILED PURSUANT TO RULE 13d-2(a) Under the Securities Exchange Act of 1934 (Amendment No. 4) PHH Corp. ------------------------------------------------------------------------------- (Name of Issuer) Common Stock ------------------------------------------------------------------------------- (Title of Class of Securities) 693320202 ------------------------------------------------------------------------------- (CUSIP Number) Alan Fournier c/o Pennant Capital Management LLC 26 Main Street, Suite 203 Chatham, NJ 07928 ------------------------------------------------------------------------------- (Name, Address and Telephone Number of Person Authorized to Receive Notices and Communications) August 10, 2007 ------------------ (Date of Event which Requires Filing of this Statement) If the filing person has previously filed a statement on Schedule 13G to report the acquisition that is the subject of this Schedule 13D, and is filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the following box [ ]. Note: Schedules filed in paper format shall include a signed original and five copies of the schedule, including all exhibits. See Rule 13d-7 for other parties to whom copies are to be sent. (Continued on following pages) (Page 1 of 6 Pages) - -------------------- * The remainder of this cover page shall be filled out for a reporting person's initial filing on this form with respect to the subject class of securities, and for any subsequent amendment containing information which would alter disclosures provided in a prior cover page. The information required on the remainder of this cover page shall not be deemed to be "filed" for the purpose of Section 18 of the Securities Exchange Act of 1934 ("Act") or otherwise subject to the liabilities of that section of the Act but shall be subject to all other provisions of the Act (however, see the Notes). - ---------------------------- ---------------------------- CUSIP No. 693320202 SCHEDULE 13D Page 2 of 6 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Pennant Capital Management, LLC - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION Delaware - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 5,048,000 ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 5,048,000 - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,048,000 - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 9.4% - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON OO - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 693320202 SCHEDULE 13D Page 3 of 6 Pages - ---------------------------- ---------------------------- - ------------- ----------------------------------------------------------------- 1 NAME OF REPORTING PERSON Alan Fournier c/o Pennant Capital Management, LLC - ------------- ----------------------------------------------------------------- 2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) |_| (b) |X| - ------------- ----------------------------------------------------------------- 3 SEC USE ONLY - ------------- ----------------------------------------------------------------- 4 SOURCE OF FUNDS AF - ------------- ----------------------------------------------------------------- 5 CHECK IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEMS 2(d) or 2(e) |_| - ------------- ----------------------------------------------------------------- 6 CITIZENSHIP OR PLACE OF ORGANIZATION United States - ------------- ----------------------------------------------------------------- NUMBER OF 7 SOLE VOTING POWER SHARES 0 ----------- ----------------------------------------------------- BENEFICIALLY 8 SHARED VOTING POWER OWNED 5,048,000 ----------- ----------------------------------------------------- BY EACH 9 SOLE DISPOSITIVE POWER REPORTING 0 ----------- ----------------------------------------------------- PERSON 10 SHARED DISPOSITIVE POWER WITH 5,048,000 - ------------- ----------- ----------------------------------------------------- 11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON 5,048,000 - ------------- ----------------------------------------------------------------- 12 CHECK IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES |_| - ------------- ----------------------------------------------------------------- 13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW 11 9.4% - ------------- ----------------------------------------------------------------- 14 TYPE OF REPORTING PERSON IN - ------------- ----------------------------------------------------------------- - ---------------------------- ---------------------------- CUSIP No. 693320202 SCHEDULE 13D Page 4 of 6 Pages - ---------------------------- ---------------------------- The Schedule 13D filed on March 22, 2007 by Pennant Capital Management, LLC, a Delaware limited liability company ("Pennant Capital") and Alan Fournier, a United States citizen ("Fournier") (collectively, the "Reporting Persons") with respect to the shares of Common Stock, par value $0.01 per share (the "Common Stock"), of PHH Corp., a Maryland corporation (the "Issuer"), as amended by Amendment Nos. 1, 2 and 3 to the Schedule 13D, is hereby amended as set forth herein by this Amendment No. 4 to the Schedule 13D. ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION Item 3 of the Schedule 13D is hereby amended and restated as follows: Funds for the purchase of the shares of Common Stock reported herein to be held by Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd. were derived from their respective general working capital and margin account borrowings made in the ordinary course of business. A total of approximately $144.5 million was paid to acquire the shares of Common Stock reported herein. ITEM 4. PURPOSE OF TRANSACTION Item 4 of the Schedule 13D is hereby amended by the addition of the following: On August 10, 2007, Pennant Capital sent a letter to the Issuer's board of directors welcoming the additional information provided in the Issuer's second preliminary proxy dated August 6, 2007 (the "Amended Proxy"), which improved disclosures around each of the five issues Pennant Capital outlined in its letter dated June 20, 2007. It further stated that the new disclosures in the Amended Proxy strongly support Pennant Capital's rationale for continued public ownership and a business separation through a tax-free spin-off. The letter described how the Amended Proxy reveals that the board likely agreed to sell the mortgage business for after-tax proceeds of approximately $795 million, which represents 0.8x tangible book value, or 3.5x 2009 pre-tax earnings as projected by the Issuer's own management. The letter noted that this price is a substantial discount to its estimated liquidation value of approximately $997 million. Pennant Capital stated that it was encouraged by the Issuer's internal financial projections for each business segment, which were consistent with its own assessment of the Issuer's potential, and it reiterated its belief that the Issuer will be valued at around $60 per share in two years if the proposed sale can be prevented as detailed in its previous letters. In conclusion, the letter demanded that the Issuer make serious efforts into exploring a spin-off and present shareholders with an analysis that compares continued public ownership to the proposed sale. A copy of the letter is attached hereto as Exhibit C and is incorporated herein by reference. ITEM 5. INTEREST IN SECURITIES OF THE ISSUER Paragraphs (a), (b) and (c) of Item 5 of the Schedule 13D are hereby amended and restated as follows: (a-b) Pennant Capital is the manager of each of Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd., and consequently has voting control and investment discretion over the securities held by each of Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd. As of the date hereof, the Funds collectively hold 9.4% of the outstanding shares of Common Stock of the Issuer. Alan Fournier is the managing member of, and thereby controls, Pennant Capital. The foregoing should not be construed in and of itself as an admission by any Reporting Person as to beneficial ownership of shares of Common Stock owned by another Reporting Person. In addition, each of Pennant Capital and Alan Fournier disclaims beneficial ownership of shares of Common Stock owned respectively by Offshore, Onshore, Qualified, Spinnaker, Windward LP and Windward Ltd. The percentages used herein are based upon the 53,680,315 shares of Common Stock reported to be outstanding as of July 16, 2007 by the Issuer in its Quarterly Report on Form 10-Q for the period ended June 30, 2007, filed with the Securities and Exchange Commission on August 8, 2007. - ---------------------------- ---------------------------- CUSIP No. 693320202 SCHEDULE 13D Page 5 of 6 Pages - ---------------------------- ---------------------------- {c) Information concerning transactions in the shares of Common Stock effected by the Reporting Persons since the filing of the Schedule 13D on August 3, 2007 is set forth in Appendix I hereto. ITEM 7. MATERIAL TO BE FILED AS EXHIBITS Item 7 of the Schedule 13D is hereby amended and restated as follows: The following documents are filed as appendices and exhibits: Appendix I: Transactions Effected Since August 3, 2007 Appendix II: Joint Filing Agreement (previously filed) Exhibit A: Letter to the Board of Directors of PHH Corp dated April 30, 2007 (previously filed) Exhibit B: Letter to the Board of Directors of PHH Corp dated June 20, 2007 (previously filed) Exhibit C: Letter to the Board of Directors of PHH Corp dated August 10, 2007 - ---------------------------- ---------------------------- CUSIP No. 693320202 SCHEDULE 13D Page 6 of 6 Pages - ---------------------------- ---------------------------- Signature After reasonable inquiry and to the best of my knowledge and belief, I certify that the information set forth in this statement is true, complete and correct. Dated: August 10, 2007 PENNANT CAPITAL MANAGEMENT LLC By: /s/ Alan Fournier ------------------------------ Alan Fournier, Managing Member /s/ Alan Fournier ------------------------------ Alan Fournier EX-99 2 appendix_i.txt APPENDIX I APPENDIX I TRANSACTIONS EFFECTED SINCE August 3, 2007 (All transactions were regular market transactions effected on The NYSE) - ------------- --------------- ---------- ----------- Date of Person Amount of Price per transaction effecting securities share transaction Bought/ or unit (Sold) - ------------- --------------- ---------- ----------- 8/8/07 OFFSHORE 26,360 25.6773 8/8/07 ONSHORE 7,450 25.6773 8/8/07 QUALIFIED 16,320 25.6773 8/8/07 SPINNAKER 6,720 25.6773 8/8/07 WINDWARD LP 33,150 25.6773 8/8/07 WINDWARD LTD. 50,000 25.6773 8/9/07 OFFSHORE 28,250 25.34 8/9/07 ONSHORE 7,980 25.34 8/9/07 QUALIFIED 17,490 25.34 8/9/07 SPINNAKER 7,200 25.34 8/9/07 WINDWARD LP 35,520 25.34 8/9/07 WINDWARD LTD. 53,560 25.34 EX-99 3 exhibit_c.txt EXHIBIT C EXHIBIT C LETTER TO THE ISSUER'S BOARD OF DIRECTOR Dear Members of the Board, We welcome the additional information provided in the second preliminary proxy dated August 6, 2007 and note that you have improved disclosures around each of the five issues we outlined in our letter dated June 20, 2007. The new disclosures underscore the value-destroying nature of the proposed sale and strongly support our rationale for continued public ownership and a business separation through a tax-free spin-off. As outlined below, the amended proxy shows that the board likely agreed to sell the mortgage business for after-tax proceeds of less than 0.8x tangible book, implying that even a liquidation of the mortgage business would be preferable to the proposed sale and result in an immediate combined valuation of $35 per share. We are also encouraged by PHH's internal financial projections and note that management evidently shares our optimism. These projections in turn imply that the board agreed to sell the mortgage business at 3.5x 2009 pre-tax earnings as projected by the company's own management. We continue to believe that PHH will be valued at around $60 per share in two years if the proposed sale can be prevented, as outlined in detail in our previous letters. PHH MORTGAGE BUSINESS WELL EQUIPPED TO NAVIGATE CURRENT ENVIRONMENT While PHH's current stock price likely reflects short-term investor concerns about PHH's ability to manage through the current mortgage industry environment, there is nothing about the present market conditions that would prevent PHH from realizing its full potential in two to three years. Our recent conversations with secondary mortgage market participants have confirmed that PHH's access to the secondary mortgage market remains secure. PHH's mortgages have a reputation for stellar credit among mortgage investors and the exceptionally strong credit performance has continued into the present, even as defaults and losses rise for other lower-quality mortgage originators. PHH primarily relies on salaried (as opposed to commission-based) employees to originate mortgages, and this difference in the incentive structure drives substantially higher mortgage credit quality. The credit trends of PHH's mortgages are described as "pristine" by market participants and investor demand for these mortgages remains high. The extraordinarily low foreclosure rates and 90 day delinquencies in the 10Q for the quarter ended June 30, 2007, are a further testament to PHH's strong credit. This ensures PHH's survival while many competitors face liquidity issues and fall by the wayside. The current environment provides an opportunity for PHH to sign up new clients on favorable terms, increase market share, and emerge as a larger and stronger company into the next up cycle. Patient investors will be rewarded handsomely. IMPLIED MORTGAGE VALUATION UNJUSTIFIABLE The new preliminary proxy discloses that Blackstone would have paid $5,026 million for the mortgage business if the transaction had closed on March 31, 2007. This payment includes the debt allocated to the mortgage business. Unfortunately, you don't disclose how much debt and tangible book equity is allocated to the mortgage business versus the fleet business. However, assuming that the fleet was financed with 10% equity and 90% debt (consistent with management's previous comments), this would imply that the mortgage tangible book value was $997 million as per the table below. It would also imply that Blackstone is paying $945 million for the equity of the mortgage business. However, this $945 million does not yet reflect the tax leakage associated with GE's sale of the mortgage business to Blackstone. The new preliminary proxy discloses that this tax inefficiency would have amounted to $150 million on an older offer made by GE and Blackstone in January 2007. Since this offer was lower than the current offer of $31.50 per share, the tax inefficiency associated with the current offer is likely even higher. If we assumed the tax inefficiency amounts to just $150 million to be conservative, then GE is selling the mortgage business' tangible equity for after-tax proceeds of $795 million or just 0.80x the tangible book value of $997 million. In other words, even a liquidation of the mortgage business at book value would be preferable to the proposed sale and would result in a $35 per share valuation assuming the same valuation for the fleet business. PHH Consolidated Implied Mortgage Blackstone at Book Fleet at Book at Book Purchase ---------------- ------------- ---------------- ---------- Net Asset Value $9,248m $4,170m $5,078m $5,026m Debt $7,834m $3,753m $4,081m $4,081m Tangible Equity $1,414m $417m $997m $945m Tax Leakage $(150)m Net Proceeds $795m Price to Book 0.80x It is important to keep in mind that the book value of the mortgage business consists of hard and highly liquid assets: a warehouse of predominantly conforming and other prime and super-prime mortgages, as well as conservatively valued mortgage servicing rights (which should become more valuable in the current environment in which it is becoming more difficult for consumers to refinance out of their mortgages). The preliminary proxy now also includes management's projections for each business segment. For the mortgage business, management forecasted a sharp turnaround in profits to pre-tax income of $94 million in 2007, $196 million in 2008, and $224 million in 2009, consistent with our own assessment of the potential of this business. The previously estimated $795 million in after-tax proceeds from the mortgage business therefore implies a valuation of just 3.5x 2009 pre-tax earnings or 6.0x 2009 net earnings, assuming a 41% tax rate. Needless to say, the fairness opinions fail to explain why 6.0x 2009 net earnings or 0.8x tangible book are fair valuations for the mortgage business. RATIONALE FOR TAX FREE SPIN-OFF STILL COMPELLING The added disclosures regarding the board's reasons not to explore a spin-off deepen our conviction that a spin-off would create the most value for shareholders. Management dismissed the spin-off prematurely on the belief that the stand-alone mortgage business would not retain investment grade credit ratings, and that the additional public company costs would be prohibitive. We continue to believe that a modest redistribution of capital between the fleet business and the mortgage business would allow both businesses to retain stand-alone investment grade ratings. This view was confirmed in our conversations with a leading credit rating agency, and we are dismayed that the board did not bother to explore this option more thoroughly. In addition, we reiterate our observation that Blackstone has secured a higher borrowing capacity for the stand-alone mortgage business than was the case on March 31, 2007, when the fleet business still supported some of the unsecured debt. If rating concerns are an argument against a spin-off, then how can you reasonably pursue a break-up and sale to an LBO fund? Regarding the added public company expenses, we regret that you failed to quantify these. This prevents shareholders from weighing them against the benefits of a spin-off. We suspect such benefits would far outweigh the incremental public company expenses. You also disclosed another structural disadvantage of the proposed sale: GE and Blackstone agreed to pay a fee and to grant other contractual concessions to Realogy in return for Realogy's waiver of the change-of-control provisions in PHH's contract with Realogy. We ask that you quantify these fees and concessions and note that similar to the tax leakage, this is an expense that could be avoided if PHH remained public. A separation of the two businesses through a spin-off would put an immediate floor to the valuation of the mortgage business at tangible book and avoid the tax leakage and concessions to Realogy associated with a sale. In addition, it would allow shareholders to participate in a substantial recovery of the mortgage business over time. We demand that you ask the investment banks to perform a comprehensive evaluation of the option to remain public and pursue a spin-off as compared with the proposed sale and include this in the next version of the proxy. This comparison needs to explore the viability of a spin-off and estimate the expected valuations of both businesses on a stand-alone basis as compared with the sale scenario (including price to tangible book and price to earnings ratios). It also needs to quantify the inherent tax leakage as well as the fees and contract concessions to Realogy. Anything less is not a proper exercise of fiduciary duty. SUMMARY We demand that you make serious efforts into exploring a spin-off and present shareholders with an analysis that compares continued public ownership to the proposed sale. The information you have supplied so far indicates that you agreed to sell the mortgage business at a substantial discount to liquidation value and at 3.5x 2009 pre-tax earnings as projected by your own management. We continue to believe in the potential of the mortgage business and take comfort in the excellent credit quality and reputation of PHH's mortgages, which secure PHH's access to the secondary market even in the current environment. Given a chance, we believe patient shareholders will be rewarded with a value per share of around $60 in two years, with downside risk limited by a possible liquidation of the mortgage business, which would yield a combined $35 value per share. Sincerely, /s/ Alan P. Fournier Alan P. Fournier Managing Member Pennant Capital Management, LLC -----END PRIVACY-ENHANCED MESSAGE-----