Cendant sheds mortgage, fleet ops to focus on residential real estate and travel sectors

Unable to find a buyer for its mortgage business, Cendant Corp. recently spun off its PHH Corp. mortgage and fleet management operations to its shareholders to better focus on its travel and residential real estate sectors. Cendant's mortgage business, operating as Cendant Mortgage, is the sixth largest retail originator of residential mortgage loans in the United States.

The company anticipates it will enter into a joint venture with Cendant Mortgage to preserve their cross-selling opportunities between the mortgage business and Cendant's residential real estate, relocation and settlement services businesses.

"We believe that the mortgage and vehicle management operations are well positioned to benefit from corporate customers' continuing desire to identify vendors, such as PHH, that can perform non-core services more efficiently," said Terence W. Edwards, current CEO of Cendant Mortgage and anticipated CEO of PHH Corporation.

According to Ronald L. Nelson, Cendant's Chief Financial Officer, the spin-off also simplifies Cendant's capital structure, reduces its earnings volatility, and eliminates the tax burden inherent in a sale. "We believe the increased transparency and reduced complexity resulting from the spin-off of PHH should enhance overall shareholder value," he said in a press release.

Cendant tried to find a buyer for its mortgage business for several months to no avail. Cendant acknowledged July 20 that it had entered talks with a "potential purchaser" and hired Goldman, Sachs & Co. and BlackRock Inc., a unit of PNC Financial Services Group Inc., to handle the sales process. Among the rumored suitors to purchase Cendant's mortgage arm were Countrywide Financial Corp. and Citigroup Inc., which spent $1.29 billion to acquire Principal Residential Mortgage, Inc., one of the largest independent mortgage servicers in the U.S.

The travel arena seems to be working so far for Cendant, who owns travel portals Galileo and Cheap Tickets and has just purchased Orbitz Inc. for $1.25 billion – a deal which vaulted the company from fifth to second in terms of biggest US travel operators. In fact, many industry experts view the Orbitz purchase a favorable development for Cendant. According to Fitch Ratings, the divestiture of the mortgage business was a positive for Cendant's credit profile because it eliminates risks associated with mortgage servicing rights (MSRs) and securitizations of residential mortgage-backed securities.