Ditech Holding Corporation

Schedule I

Notes to the Parent Company Financial Statements

1. Basis of Presentation

The financial information of the Parent Company should be read in conjunction with the Consolidated Financial Statements included in this report. These Parent Company financial statements reflect the results of operations, financial position and cash flows for the Parent Company and its investment in consolidated subsidiaries and VIEs, for which it is the primary beneficiary, using the equity method of accounting.

The accompanying Parent Company financial statements have been prepared in accordance with GAAP. The preparation of these Parent Company financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period.

2. Emergence from the WIMC Reorganization Proceedings

On November 30, 2017, Walter Investment Management Corp. (Predecessor) filed the WIMC Bankruptcy Petition under the Bankruptcy Code to pursue the WIMC Prepackaged Plan announced on November 6, 2017. On January 17, 2018, the Bankruptcy Court approved the amended WIMC Prepackaged Plan and on January 18, 2018, entered a confirmation order approving the WIMC Prepackaged Plan. On February 9, 2018, the WIMC Prepackaged Plan became effective pursuant to its terms and Walter Investment Management Corp. emerged from the WIMC Chapter 11 Case and changed its name to Ditech Holding Corporation (Successor) and on February 12, 2018, our newly issued common stock commenced trading on the NYSE under the symbol DHCP. From and after effectiveness of the WIMC Prepackaged Plan, the Parent Company has continued, in its previous organizational form, to carry out its business.

The impact of the WIMC Reorganization on the Parent Company's debt and equity is discussed in further detail in Notes 20, 23 and 25 to the Consolidated Financial Statements.

Liabilities Subject to Compromise

Liabilities subject to compromise included unsecured or under-secured liabilities incurred prior to the WIMC Petition Date. These liabilities represented the amounts that were expected to be allowed on known or potential claims to be resolved through the WIMC Chapter 11 Case and were subject to future adjustments based on negotiated settlements with claimants, actions of the Bankruptcy Court, rejection of executory contracts, proofs of claims or other events. Generally, actions to enforce or otherwise effect payment of prepetition liabilities are subject to the automatic stay or an approved motion of the Bankruptcy Court.

The Parent Company's liabilities that were subject to compromise consisted of the following (in thousands):



	Predecessor
	December 31, 2017
Senior Notes	$	538,662
Convertible Notes	242,468
Accrued interest⁽¹⁾	25,807
Total liabilities subject to compromise	$	806,937

__________

(1)

Represents accrued interest on the Senior Notes and Convertible Notes as of November 30, 2017, the date the Company filed the WIMC Bankruptcy Petition. As interest on the Senior Notes and Convertible Notes subsequent to November 30, 2017 was not expected to be an allowed claim, this amount excludes interest that would have been accrued subsequent to November 30, 2017. Interest expense reported on the Parent Company statements of comprehensive income (loss) for the period from January 1, 2018 through February 9, 2018 and the year ended December 31, 2017 excludes $5.9 million and $4.4 million, respectively, of interest on the Senior Notes and Convertible Notes that otherwise would have been accrued for the period.

On the WIMC Effective Date, all of the Parent Company's obligations under the previously outstanding Convertible Notes and Senior Notes listed above were extinguished. Previously outstanding debt interests were exchanged for Second Lien Notes, common stock, Mandatorily Convertible Preferred Stock, Series A Warrants and/or Series B Warrants, as applicable.

Reorganization Items and Fresh Start Accounting Adjustments

The Parent Company met the conditions to qualify under GAAP for fresh start accounting, and accordingly, adopted fresh start accounting effective February 10, 2018. The Parent Company's reorganization items and fresh start accounting adjustments consist of the following (in thousands):



	Successor			Predecessor
	For the Period From February 10, 2018 Through December 31, 2018			For the Period From January 1, 2018 Through February 9, 2018		For the Year Ended December 31, 2017
Gain on cancellation of corporate debt	$	—		$	556,937	$	—
Less: issuance of new equity to Convertible and Senior Noteholders	—			153,764		—
Net gain on cancellation of corporate debt	—			403,173		—
Less:
Legal and professional fees⁽¹⁾	2,123			12,461		3,098
Write-off deferred debt issuance costs and discounts	—			—		34,406
Other expenses	603			3,378		141
Total expenses	2,726			15,839		37,645
Total reorganization items	(2,726		)	387,334		(37,645		)
Fresh start accounting adjustments	—			71,177		—
Reorganization items and fresh start accounting adjustments	$	(2,726	)	$	458,511	$	(37,645	)

__________


(1)	Professional fees are directly related to the WIMC Reorganization.

The Parent Company made cash payments for reorganization items of $11.8 million and $5.7 million during the period from February 10, 2018 through December 31, 2018 and the period from January 1, 2018 through February 9, 2018, respectively. There were no payments made for the year ended December 31, 2017.

3. Supplemental Disclosures of Cash Flow Information

The Parent Company’s supplemental disclosures of cash flow information are summarized as follows (in thousands):



	Successor			Predecessor
	For the Period From February 10, 2018 Through December 31, 2018			For the Period From January 1, 2018 Through February 9, 2018			For the Year Ended December 31, 2017
Supplemental Disclosure of Cash Flow Information
Cash paid for interest	$	87,389		$	7,437		$	93,327
Cash received for taxes	(938		)	(78		)	(72,982		)
Supplemental Disclosure of Non-Cash Investing and Financing Activities
Contributions to subsidiaries	2,013			—			184,474
Distributions from subsidiaries	—			—			4,474

4. Guarantees

Refer to Note 28 to the Consolidated Financial Statements for certain guarantees made by the Parent Company in regards to Ditech Financial and RMS. In addition to these guarantees, all obligations of Ditech Financial and RMS under master repurchase agreements and certain servicing advance facilities are guaranteed by the Parent Company. The Parent Company also guarantees certain subsidiary obligations such as agreements to perform servicing in accordance with contract terms.

5. Subsequent Events

On January 16, 2019, the Parent Company and certain of its subsidiaries entered into forbearance agreements with (i) certain holders of greater than 75% of the aggregate principal amount of the outstanding Second Lien Notes, (ii) certain lenders of greater than 50% of the aggregate principal amount outstanding under the 2018 Credit Agreement and the administrative agent and collateral agent under the 2018 Credit Agreement and (iii) the requisite buyers and variable funding noteholders, as applicable, under certain warehouse facility agreements. Pursuant to the forbearance agreements, the parties noted above agreed to temporarily forbear from the exercise of any rights or remedies they may have in respect of the aforementioned anticipated events of default or other defaults or events of default arising out of or in connection therewith.

On February 8, 2019, the Parent Company and certain of its subsidiaries entered into additional forbearance agreements with (i) certain lenders holding greater than 50% of the sum of (a) the loans outstanding, (b) letter of credit exposure and (c) unused commitments under the 2018 Credit Agreement at such time and the administrative agent and collateral agent under the 2018 Credit Agreement, (ii) the requisite buyers and variable funding noteholders, as applicable, under certain warehouse facility agreements and (iii) the counterparty under a certain master securities forward transaction agreement.

On February 11, 2019, as contemplated by the DHCP RSA, the Debtors filed the DHCP Bankruptcy Petitions and the DHCP Chapter 11 Cases commenced thereby under the Bankruptcy Code in the Bankruptcy Court. Consistent with the DHCP RSA, on March 5, 2019, the Debtors filed the DHCP Plan with the Bankruptcy Court seeking to emerge from Chapter 11 on an expedited timeframe. The Debtors filed an amended DHCP Plan with the Bankruptcy Court on March 28, 2019. The Debtors are continuing to operate their businesses as debtors in possession under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of the Bankruptcy Code. The Parent Company and its consolidated subsidiaries intend to continue to operate their businesses during the pendency of the DHCP Chapter 11 Cases. To assure ordinary course operations, the Debtors have obtained approval from the Bankruptcy Court for a variety of first day motions seeking various relief, authorizing them to maintain their operations in the ordinary course.

Restructuring Support Agreement

On February 8, 2019, the Debtors entered into the DHCP RSA with the Consenting Term Lenders holding, as of February 11, 2019, more than 75% of the term loans outstanding under the 2018 Credit Agreement.

Pursuant to the DHCP RSA, the Consenting Term Lenders and the Debtors have agreed to the principal terms of a financial restructuring of the Parent Company and consolidated subsidiaries, which will be implemented through a prearranged plan of reorganization under the Bankruptcy Code and which provides for the restructuring of the Parent Company's indebtedness through a recapitalization transaction that is expected to reduce gross corporate debt by over $800 million and provide the reorganized company with an appropriately sized working capital facility upon emergence from the DHCP Reorganization Transaction.

The DHCP RSA also provides for the continuation of the Parent Company’s prepetition review of strategic alternatives, whereby, as a potential alternative to the implementation of a DHCP Reorganization Transaction, any and all bids for the Parent Company and its consolidated subsidiaries or its assets will be evaluated as a precursor to confirmation of any Chapter 11 plan of reorganization.

The review of strategic alternatives provides a public and comprehensive forum in which the Debtors are seeking bids or proposals for three types of potential transactions, as described below. If a bid or proposal is received representing higher or better value than the DHCP Reorganization Transaction, it will either be incorporated into the DHCP Reorganization Transaction or pursued as an alternative to the DHCP Reorganization Transaction in consultation with the Consenting Term Lenders and subject to the DHCP RSA.

The three types of transactions for which bids are being solicited are:


•	a sale transaction meaning, a sale of substantially all of the Parent Company's and its consolidated subsidiaries' assets, as provided in the DHCP RSA;


•	an asset sale transaction meaning, the sale of a portion of the Parent Company's and its consolidated subsidiaries' assets other than a sale transaction consummated prior to DHCP Effective Date; provided such sale shall only be conducted with the consent of the Requisite Term Lenders; and

•

a master servicing transaction meaning, as part of the DHCP Reorganization Transaction to the extent the terms thereof are acceptable to the Requisite Term Lenders, entry by the Parent Company and/or its consolidated subsidiaries into an agreement or agreements with an approved subservicer or subservicers whereby, following the DHCP Effective Date, all or substantially all of the Parent Company’s consolidated subsidiaries' mortgage servicing rights are subserviced by the new subservicer.

The DHCP RSA presently contemplates the following treatment for certain key classes of creditors under the DHCP Reorganization Transaction:


•	DHCP DIP Warehouse Facilities Claims - On the DHCP Effective Date, the holders of DHCP DIP Warehouse Facilities claims will be paid in full in cash;


•	Term Loan Claims - On the DHCP Effective Date, the holders of Term Loan Claims will receive their pro rata share of new term loans under an amended and restated credit facility agreement in the aggregate principal amount of $400 million, and 100% of the New Common Stock, which will be privately held;


•	Second Lien Notes Claims - On the DHCP Effective Date, the holders of the Second Lien Notes will not receive any distribution;


•	Go-Forward Trade Claims - On the DHCP Effective Date, trade creditors identified by the Parent Company and its consolidated subsidiaries (with the consent of the Requisite Term Lenders) as being integral to and necessary for the ongoing operations of New Ditech) will receive a distribution in cash in an amount equaling a certain percentage of their claim, subject to an aggregate cap; and


•	Existing Equity Interests - On the DHCP Effective Date, holders of the Parent Company’s existing preferred stock, common stock and warrants will have their claims extinguished.

If the Debtors proceed to confirmation of a sale transaction, the Debtors will distribute proceeds of such transaction in accordance with the priority scheme under the Bankruptcy Code.

Under the DHCP RSA, on the Election Date, the Electing Term Lenders may deliver an election notice to the Parent Company stating that the Electing Term Lenders wish to consummate an elected transaction as follows: (i) the DHCP Reorganization Transaction, or (ii) master servicing transaction (as part of the DHCP Reorganization Transaction), or (iii) sale transaction, and, if applicable, (iv) in connection and together with an election of (i), (ii), or (iii), any asset sale transaction(s), provided that inclusion of any asset sale transaction(s) is not incompatible with successful consummation of the elected transaction in (i), (ii) or (iii). If the Debtors do not proceed with the elected transaction, the Consenting Term Lenders can terminate the DHCP RSA.

The filing of the DHCP Bankruptcy Petitions described above triggers an event of default or an early amortization event under certain of the Parent Company's debt instruments. The filing of the DHCP Bankruptcy Petitions also triggers the liquidation preference of the Company’s Mandatorily Convertible Preferred Stock. Certain of the Parent Company's obligations, including the payment of interest under the Parent Company's debt instruments, are stayed under the Bankruptcy Code during the pendency of the DHCP Chapter 11 Cases.

During the pendency of the DHCP Chapter 11 Cases, the Bankruptcy Court granted relief enabling the Parent Company and certain of its subsidiaries to conduct their business activities in the ordinary course, including, among other things and subject to the terms and conditions of such orders, authorizing the payment of employee wages and benefits, the payment of taxes and certain governmental fees and charges, continued operation of the cash management system in the ordinary course, and payment of the prepetition claims to certain of the Parent Company's vendors. For goods and services provided following the DHCP Petition Date, the Parent Company continues to pay vendors under normal terms.

DHCP DIP Warehouse Facilities

On February 8, 2019, the Parent Company, as guarantor, along with its wholly-owned subsidiaries Ditech Financial and RMS, entered into the DHCP Commitment Letter with Barclays Bank PLC and Nomura Corporate Funding Americas, LLC regarding the terms of the DHCP DIP Warehouse Facilities, which, upon approval from the Bankruptcy Court on February 14, 2019, provide the Parent Company and its consolidated subsidiaries up to $1.9 billion in available financing. Proceeds of the DHCP DIP Warehouse Facilities were used to repay and refinance RMS’ and Ditech Financial’s existing master repurchase agreements and variable funding notes issued under existing servicer advance facilities. The existing master repurchase agreements and variable funding notes issued under servicer advance facilities were terminated or otherwise replaced under the DHCP DIP Warehouse Facilities. The DHCP DIP Warehouse Facilities will be used to fund Ditech Financial’s and RMS’ continued business operations, providing the necessary liquidity to the Debtors to implement the DHCP Restructuring.

Under the DHCP DIP Warehouse Facilities:

(i) up to $650.0 million will be available to fund Ditech Financial’s origination business and will incur interest based on 3-month LIBOR plus a per annum margin of 2.25%;

(ii) up to $1.0 billion will be available to RMS to fund certain HECMs and real estate owned from Ginnie Mae securitization pools, and will incur interest based on 3-month LIBOR plus a per annum margin of 3.25%; and

(iii) up to $250.0 million will be available to finance the advance receivables related to Ditech Financial’s servicing activities and will incur interest based on 3-month LIBOR plus a per annum margin of 2.25%. Two new series of variable funding notes were issued under the DHCP DIP Warehouse Facilities to replace the existing variable funding notes under the DAAT Facility and DPAT II Facility, which otherwise remain largely intact to finance advances.

In addition, the lenders under the DHCP DIP Warehouse Facilities have agreed to provide Ditech Financial, through the DIP Maturity Date, up to $1.9 billion in trading capacity for Ditech Financial to hedge its interest rate exposure with respect to the loans in Ditech Financial’s loan origination pipeline. The obligations of Ditech Financial and RMS under certain of the DHCP DIP Warehouse Facilities and related hedges are netted and cross-collateralized, pursuant to the terms of a master netting arrangement. Pursuant to such netting arrangement, the lenders under the DHCP DIP Warehouse Facilities are permitted to set-off and net certain margin held by or pledged to them under certain of the DHCP DIP Warehouse Facilities and related hedges against the obligations owed by Ditech Financial and/or RMS thereunder.

The DHCP DIP Warehouse Facilities contain customary events of default and financial covenants. Financial covenants that are most sensitive to the operating results of the Parent Company's subsidiaries and resulting financial position are minimum tangible net worth requirements, indebtedness to tangible net worth ratio requirements, and minimum liquidity requirements. The Parent Company and its consolidated subsidiaries were in compliance with all financial covenants under the DHCP DIP Warehouse Facilities as of February 28, 2019.