UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
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[ ] Definitive Proxy [ ] Statement[ ]
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[ ] Soliciting Material Pursuant to ss.240.14a-12
PHH CORPORATION
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(Name of Registrant as Specified In Its Charter)
PENNANT CAPITAL MANAGEMENT, LLC
PENNANT OFFSHORE PARTNERS, LTD.
PENNANT ONSHORE PARTNERS, LP
PENNANT ONSHORE QUALIFIED, LP
PENNANT SPINNAKER FUND LP
PENNANT WINDWARD FUND, LP
PENNANT WINDWARD FUND, LTD.
ALAN FOURNIER
ALLAN Z. LOREN
GREGORY J. PARSEGHIAN
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Pennant 26 Main Street, Suite 203, Chatham, NJ 07928
Capital Phone 973-701-1100, Fax 973-701-9005
Management, LLC
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PROTECT YOUR INVESTMENT IN PHH CORPORATION
FROM POOR MANAGEMENT
REJECT MANAGEMENT'S CYNICAL AND DESPERATE ATTACKS
ON PENNANT AND ITS NOMINEES
VOTE THE GOLD PROXY CARD FOR TWO INDEPENDENT NOMINEES WHO WILL BRING
EXPERIENCE, EXPERTISE AND ENERGY TO THE BOARD AND WHO WILL
WORK HARD TO ENHANCE VALUE FOR ALL PHH STOCKHOLDERS
May 12, 2009
Dear Fellow PHH Stockholders:
Pennant Capital Management, LLC and affiliates own 5,407,141 shares, or
9.94% of PHH Corporation's outstanding common stock, making us the Company's
largest stockholder. We began investing in PHH in 2006 because we believed that
PHH could produce substantial returns on our investment if the Company were
properly managed.
We continue to believe strongly in the Company's potential and in the value
of its intrinsic advantages, including these:
o The Company is the only private label mortgage outsourcer of size in
the United States, and in many cases it may be the only option for
subscale institutions to offer a mortgage product to their customers
without outsourcing to a competitor; and
o The Company's fleet services segment is the 2nd largest player in the
fleet management industry in the U.S. and Canada combined.
However, we believe equally strongly that PHH requires change on its Board of
Directors in order to achieve its full potential. We urge you to vote for the
two Independent Nominees to the Board - Greg Parseghian and Allan Loren -
because we believe Mr. Parseghian will bring to the Board extremely valuable
mortgage industry experience and Mr. Loren will bring to the Board the talents
of an independent director with a proven track record of creating stockholder
value and implementing change as the chief executive officer of a well-known
company.
A POORLY MANAGED COMPANY
In a meeting on August 19, 2008, PHH's Board Chairman told us that the
Board was "tired" and that some directors were open to being replaced as a
result of their efforts in connection with the Company's accounting restatement
and the mortgage market downturn. While the economic climate in general, and the
housing and financing markets in particular, have presented serious challenges,
we believe, as described in greater detail in our proxy statement, that the
Board has poorly managed the Company through these difficult times:
o Failure to Understand PHH's Normalized Earnings Potential
Management has been unable to describe to Pennant the normalized
earnings power of the Company, and has even suggested that in this
economy there may be no such a thing as normalized earnings power. We
believe that without such an understanding, the Board cannot set
meaningful targets to track management's performance, cannot establish
effective incentives for management, cannot explain to investors the
Company's long-term earnings potential and cannot make fully informed
capital allocation decisions.
o Implemented Management Incentives Based on Significant Factors Outside
Employees' Control
Awards under the Company's management incentive plans are based on
achieving pre-tax income targets typically set annually in March.
Achievement of these targets depends on external factors, such as
future interest rates and market driven gain-on-sale margins, which
cannot be controlled by employees and cannot be known by management
when the targets are set. We believe incentive targets should focus on
parameters that are largely within the employees' control, such as
efficiency, cost structure and operational aspects and profitability
of customer contracts.
o Sufficient Focus on Profitability?
We question whether, until recently, the Board and management had
focused sufficiently on the profitability of individual clients. If
PHH did not have appropriate metrics in place to measure the
profitability of individual clients, we believe PHH would have been
unable to evaluate whether existing clients were sufficiently
profitable and whether potential new clients were sufficiently
profitable to pursue.
o Too Slow to Reduce Mortgage Production Costs
Throughout 2008, management's goal for mortgage production was to
break even. In May 2008, at the time of the 1Q earnings call,
management already knew that refinancing activity was slowing down. By
August 2008, on the 2Q earnings call, Mr. Edwards stated: "So getting
it to break even is just not going to happen. So what we're going to
do over the next few weeks is the management team of the mortgage
company is going to brainstorm ...." Given that management knew of the
slowdown months
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before, we believe PHH should already have been "brainstorming" about
the lack of profitability.
o Too Slow to Pass Through Fleet Funding Costs to Clients
While management was aware, from at least late 2007, that its actual
vehicle financing costs significantly exceeded the indices used to
pass these costs on to clients, the Board failed to ensure that
concrete steps were taken to mitigate this impact until well into 4Q
2008. As a result, full recovery to Fleet's normalized earnings power
has been meaningfully delayed.
o Engaged in a Series of Public Relations Failures
We believe management has failed to communicate PHH's long-term
earnings potential and has failed to adequately distinguish the
Company from troubled financial institutions that take substantial
balance sheet risks in their business models. Only last week, in a
letter to stockholders, the Company actually took credit for being
more sound than Countrywide, IndyMac and Washington Mutual, as though
avoiding bankruptcy or a forced fire sale was the mark of success for
PHH. We believe the Company's poor communications strategy and
execution has hurt stockholders in a number of ways, including by
making it harder for investors to value PHH based on its underlying
earnings power and by making it harder for PHH to recruit and retain
outsourcing clients.
DO PHH'S MANAGEMENT AND BOARD EVEN "GET IT"?
Over the past year, we have met and spoken with PHH management and Board
members and have encouraged them to address our concerns. These contacts with
PHH have convinced us that the current Board will not take the necessary steps
on a timely basis to effectively enhance stockholder value unless they are
prodded by new, independent voices. That is why we are asking you not to return
any proxy card you may receive from management and to vote only on the enclosed
GOLD proxy card.
In a recent letter to stockholders signed by the entire Board and issued by
the Company as a press release, the Board clearly demonstrated its failure to
understand a critical issue for PHH. The Board wrote to you:
"while Pennant now alleges that [we] and management are not focused
on developing long-term stockholder value, Pennant, in its filings with
the [SEC] in November 2008, criticized [us] for `preferring instead to
manage the Company for long-term growth and client relationships.'"
Apparently, the Board sees a contradiction in these two criticisms we've
made of its stewardship. But what the Board fails to understand is that
"long-term growth" does not always equate to "long-term stockholder value." If
growth is unprofitable, then stockholder value is destroyed. And that has been
one of our central concerns about PHH's
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Board and management - whether they have focused sufficiently on profitability
in their efforts to grow.
More recently, in a May 7, 2009 letter to stockholders, the Board
questioned "whether Pennant's agenda is in your long-term interest," as though
we had some nefarious plan we were trying to carry out through the election of
two Independent Nominees to a Board of seven. All we are seeking to do is to
ensure that the Company can meet its potential and create substantial value for
all stockholders. We have never advocated that the Company focus on near-term
profitability for its own sake and, unlike the Board, we have never mistaken
growth for value.
REJECT MANAGEMENT'S CYNICAL AND DESPERATE ATTACKS ON
AN INDEPENDENT NOMINEE TO THE PHH BOARD
In its May 7 letter to stockholders, the incumbent Board attacked - with
all the moral authority of a drive-by shooting - the integrity and
qualifications of one of the Independent Nominees. Most egregiously, the Board
smeared the reputation of Greg Parseghian with innuendo and half truths about
his long service as Chief Investment Officer and then Chief Executive Officer of
Freddie Mac. While Mr. Parseghian was Chief Investment Officer of Freddie Mac,
that company engaged in questionable accounting practices that had the result of
reducing strong current earnings and moving them into future accounting periods.
In unloading its innuendo in an unfair, unbalanced manner, the Board failed to
explain that:
o Mr. Parseghian is not an accountant and was in no way responsible for
Freddie Mac's accounting. Neither Freddie Mac's internal or outside
auditors reported to him. The "Baker Botts report" that the Board
cites in its letter explicitly expressed the belief that the Funding
and Investments Division headed by Mr. Parseghian generally relied in
good faith on Freddie Mac's internal and outside auditors to provide
the necessary accounting advice and to ensure that transactions were
accounted for in accordance with GAAP.
o After the accounting scandal came to light and Freddie Mac's CEO and
other top officers were terminated, the Freddie Mac board of
directors, well aware of the circumstances surrounding the scandal and
of the findings and conclusions of the Baker Botts report, chose to
elevate Mr. Parseghian to the CEO position.
o The Office of Federal Housing Enterprise Oversight (OFHEO), which was
Freddie Mac's regulator, forced the Freddie Mac board to remove Mr.
Parseghian as CEO under extreme political pressure. Having failed as a
regulator to detect accounting problems at Freddie Mac, OFHEO was
under intense public pressure, including threats to eliminate the
agency, and needed to show that it was taking charge of an
embarrassing situation.
o Unlike other senior officers of Freddie Mac, Mr. Parseghian was never
charged with improper activities and never even received notice that
he was a target of an investigation.
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In another example of a cynical attack, the Board observes in its May 7
letter that Mr. Parseghian is a director of Everquest, which in 2007 had sought
to go public as a business consisting primarily of collateralized debt
obligations secured by subprime mortgages. Everquest was affiliated with and had
acquired many of its assets from hedge funds associated with Bear Stearns, and
its efforts to go public ended after the value of its assets was questioned in
the press, with suggestions that troubled Bear Stearns hedge funds were using
Everquest to address their liquidity concerns. Without suggesting that Everquest
or Mr. Parseghian had done anything wrong, or that the proposed public offering
would not be marketed and priced to reflect the value and risk inherent in
Everquest's assets, the Board questioned Mr. Parseghian's suitability for
election to the Board. And this despite the Board's concession that "[i]t is not
our role to determine what did or did not happen at Bear Stearns, the Bear
Stearns hedge funds or Everquest, nor do we believe any allegations have been
made that Mr. Parseghian was implicated in the collapse of the Bear Stearns
hedge funds or the problems at Bear Stearns."
The Board has relied on accusations and innuendo, which we believe is
fundamentally unfair. We believe stockholders should emphatically reject the
Board's scare tactics and its cynical attacks on Mr. Parseghian.
VOTE THE GOLD PROXY CARD TO BRING MUCH NEEDED CHANGE -
FRESH VOICES AND FRESH IDEAS - TO THE PHH BOARD
By asking you to vote the GOLD proxy card, we are not asking you to hand
over control of PHH. We are only asking that you elect two new directors to a
seven-member board so that ALL stockholders will be represented by at least two
independent directors who have been nominated by stockholders for the express
purpose of enhancing stockholder value and who in no way are beholden to
management.
By voting the GOLD proxy card, you will be voting FOR the two Independent
Nominees, as well as FOR the Company Nominee other than Terence W. Edwards and
A.B. Krongard. We intend to vote the GOLD proxy card for the Company Nominee
other than Mr. Edwards and Mr. Krongard because we believe that Mr. Edwards, in
his capacity as President and Chief Executive Officer of the Company, and Mr.
Krongard, in his capacity as Chairman of the Board, bear significant
responsibility for a number of the self-inflicted problems facing the Company,
and we have lost confidence in their ability to effectively and expeditiously
handle future challenges and opportunities for the Company.
VOTE THE GOLD PROXY CARD TODAY TO HELP ENHANCE
LONG-TERM STOCKHOLDER VALUE AT PHH
We encourage you to read our proxy statement, which accompanies this
letter. We believe you will agree that we have, for some time now, worked
assiduously to persuade the Company to make changes that could lead to the
creation of stockholder value. Some of our suggestions have been adopted,
although much too slowly, and others appear just to have been
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ignored. We look forward with speaking to many of you during the course of this
campaign, and hope we can count on your support.
If you have any questions, or need assistance voting your GOLD proxy card,
please contact MacKenzie Partners, Inc., which is assisting us in this
solicitation, at (800) 322-2885 (toll-free) or (212) 929-5500 (call collect) or
by email at proxy@mackenziepartners.com. You may also be able to vote by
telephone or internet by following the instructions on the enclosed voting form.
On behalf of Pennant Capital Management, LLC,
Sincerely,
/s/ Alan Fournier
Alan Fournier
Managing Member
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If you have questions or need assistance voting the GOLD proxy card please
contact:
MacKenzie Partners, Inc.
105 Madison Avenue
New York, New York 10016
proxy@mackenziepartners.com
Call Collect: (212) 929-5500
or
Toll-Free (800) 322-2885
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