The firm previously offered to exchange $850 in principal amount for new notes and $250 in cash for each $1,000 in principal amount for old notes, but it’s now offering “a mixed consideration of $1,100 in cash and principal amount of new notes for each $1,000 principal amount of old notes,” according to an 8-K filing with the Securities and Exchange Commission (SEC).

“Normally, what we see in the mortgage finance space — for servicers, real estate investment trusts and all the companies we cover — is usually five-year debt, most of the time,” Eric Hagen, a BTIG analyst who covers mortgage companies, said in an interview.

“The fact that they are doing this exchange in about two years reflects the fact that they are in stress.”

Warren Kornfeld, senior vice president of the financial institutions group at Moody’s, said “the cost of the debt is high” not only because of the coupon but also because of the 10-percentage-point premium loanDepot is paying to extend the bonds, which brings the transaction to a 13.75% yield. He added that the company “is obviously facing challenges” and “it’s buying time.”

“It has lost money for about two years now and that obviously had a material decline in capital. But they are making efforts; it is a very difficult market and they continue to cut costs and narrow their losses,” Kornfeld said. “The debt extension is credit positive, giving them now two more years. Between now and the end of 2027, I think most market participants expect conditions to improve.”

A spokesperson for loanDepot declined to comment.

By comparison, Mr. Cooper issued senior notes to qualified investors in January that will mature in 2032 and will bear interest at 7.125% per year, paid semiannually.

Pennymac also issued new debt last year that will mature in December 2029 and will pay 7.875% annually. And Rithm Capital priced an offering of $775 million in aggregate principal of senior unsecured notes due in 2029 at 8% per year.

loanDepot added a cap of $185 million for the cash consideration in its debt extension, paid on a pro-rata basis. It reported a cash balance of $604 million at the end of March.

The debt extension is expected to close on June 18 if 85% of the eligible bondholders agree with conditions. While negotiations are still in progress, as of June 3, debt holders representing 24.7% of the senior notes — or $123 million — have agreed by validly tendering and not validly withdrawing from the exchange offer. Another 68% have indicated their intent to participate.

The new notes are guaranteed by, among other things, $60 million in nonagency mortgage servicing rights (MSR) and a securities account holding of $100.6 million in aggregate principal of 2028 senior notes held by Artemis Management LLC.

Kornfeld said that this is a “modest” level of security, since in MSR-secured debt issuances, the amount of collateral is typically about 30% to 40% higher than the actual bond amount.

BTIG analyst Hagen and his colleague Jake Katsikas said in a report that selling MSRs to “cut leverage remains an option, although the company’s $2 billion of servicing on the balance sheet are the primary source of cash flow support for the bonds right now, and selling MSRs could effectively amount to selling the source of recapture revenue when rates eventually fall.”

loanDepot has implemented a $120 million supplemental productivity program to return to profitability. From January to March, it recorded a non-GAAP adjusted net loss of $38 million, compared to a $26.6 million loss in the previous quarter and a $59 million loss in first-quarter 2023.

“They need interest rates to fall to make more money. If they can’t do that, they can still cover the bond payments because they have cash flow from their MSR. But MSR values are sensitive to interest rates,” Hagen said.