UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A
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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
VOTE THE GOLD PROXY CARD FOR CHANGE AT PHH
June 2, 2009
To Our Fellow PHH Stockholders:
Next week, at PHH Corporation's 2009 Annual Meeting of Stockholders, we
will be able to send a very important message - and two Independent Nominees -
to the PHH Board of Directors.
CHANGE IS DESPERATELY NEEDED ON THE PHH BOARD
It is abundantly clear that fresh ideas and strong leadership are
desperately needed at PHH. Recently, in defense of its disappointing track
record, the PHH Board once again insisted that the company's very survival in
today's economic environment is "a real mark of success." Apart from the Board's
April 2009 switch of one accounting expert for another, this is the same
unambitious Board that last year allowed management to target break-even results
for the mortgage production segment. And it is the same Board that was called
"tired" last year by its Chairman as a result of efforts in connection with an
accounting restatement and the mortgage market downturn.
It is time for stockholders to elect two new directors with fresh ideas,
vital expertise and leadership experience, and the energy to focus on the
creation of stockholder value. By electing the Independent Nominees, we can
unambiguously deliver the message that merely surviving in today's economic
environment is not "a real mark of success" and is not even close to enough. We
urge you to vote on the GOLD proxy card for the two Independent Nominees - Allan
Loren and Greg Parseghian.
DON'T BELIEVE MANAGEMENT'S CLAIMS
THAT PHH IS PERFORMING WELL
o Q1 `09 Results Do Not Change Management's Track Record of Poor
Performance
Management points to "encouraging first quarter 2009 results" as a
sign of its "solid track record." What management fails to say,
however, is that this quarterly profit of only $2 million, or $.04 per
share, is PHH's first quarterly profit in the last fourteen quarters.
Looking more closely at these results, it is clear that management
could have controlled what went wrong in the quarter and had no
control over what went right. Instead of taking credit for finally
earning a paltry quarterly profit, management should be blaming itself
for poor mortgage servicing results and celebrating its luck at strong
mortgage production results.
PHH Reported Segment Profit ($ in millions)
--------------------------------- --------------------
1Q 2009
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Mortgage Production $113
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Mortgage Servicing $(118)
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Fleet Management $7
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While management explains away the huge mortgage servicing loss as the
result of interest rate changes beyond its control, management had
previously made the conscious decision to eliminate its MSR hedging
strategy, which is common in the industry and should have
substantially offset the $118 million loss.
And the strong mortgage productions results are directly attributable
to the industry-wide refinancing boom that has been fueled by
historically low interest rates that are, indeed, beyond management's
control. Once that boom is over, where will that leave PHH? Does the
PHH Board believe stockholders are naive enough to fall for this?
o Don't Read Too Much Into Today's Stock Price
While the PHH stock price has increased significantly from its low
point last November, the stock still trades below its price one year
ago. We seriously question whether the run-up is attributable to the
leadership, performance and credibility of the incumbent Board.
Rather, we think there are much better explanations, such as the
industry-wide refinancing boom that has emerged from massive
government intervention in the financial markets.
We believe that without significant change at PHH, the company's stock
could end up trading largely as a proxy for refinancing activity, and
at a sustained discount to tangible net book value. Today, the stock
closed at 75% of tangible net book value. Since PHH marks
substantially all of its assets to market or fair value, we believe
that tangible net book value represents a reasonable proxy for runoff
value and that the market is saying, in effect, that PHH is worth more
"dead than alive." Is this "a real mark of success" of the incumbent
Board?
o Don't Be Fooled by Management's Comparison Companies
In a recent presentation, PHH compared its stock performance with that
of handpicked "comparable companies." Not surprisingly, over the year
ended May 20, 2009, PHH's stock had fallen less than the shares of
these companies. While management might find this convincing and
comforting given PHH's weak operational performance, once again
management is comparing PHH to companies that are not comparable -
banks and financial institutions that, unlike PHH, are balance sheet
lenders and originate mortgage loans to hold for investment.
-2-
WHY YOU SHOULD VOTE FOR CHANGE NOW
In our prior communications to you, we have addressed in detail the many
significant failures of PHH's management and Board that impel us to seek change
in two of the seven PHH Board seats. In this last week before the 2009 Annual
Meeting, while you consider how you will cast your critical votes, we urge you
to consider why Board change is so important now:
o The Clock Is Ticking
In approximately 18 months, PHH's unsecured credit facility - with
nearly $1 billion drawn at March 31, 2009 - will come due. Given the
recent declines in PHH Fleet's profitability and the lack of sustained
profitability at PHH Mortgage in recent years, lenders may question
the Company's prospects for long-term sustained profitability, and
that may affect its ability to refinance the credit facility on
commercially acceptable terms.
o Funding Concerns
According to a June 1, 2009 RiskMetrics Group report, the company is
exploring taking actions to increase funding available to its mortgage
and fleet services operations, such as forming or acquiring a bank,
enrolling in the Federal Reserve's TALF program, and issuing debt and
equity offerings. We think stockholders should be seriously concerned
about potential dilution and other possibly adverse consequences of
some of these avenues being explored by management.
o A Fresh Approach Is Needed
At a minimum, the Board must position PHH for success by (1) building
a more flexible cost structure targeted for profitability in all
environments, (2) establishing compensation arrangements that base
management incentives on factors that are within management's control,
(3) fully evaluating the profitability of each existing and potential
client contract, with a view toward profitable growth, and (4)
communicating with stockholders, markets, customers, creditors and
ratings agencies in a productive manner, including understanding and
publicly articulating the normalized earnings power of the company and
not comparing the company to failed and failing balance sheet lenders
that it should not and does not remotely resemble.
o The Current Board Lacks Important Experience and Expertise
Non-management directors play an extremely important role in
evaluating, guiding and serving as a sounding board for a company's
CEO and management. If independent directors are not experienced and
knowledgeable, management might as well be operating without
supervision.
-3-
Surprisingly, only one non-management director seems to have had any
specific business background in the mortgage industry. We believe the
Board's response to this lack of expertise - hiring an outside
consultant who owes his job to management and the Board - is a poor
substitute for having more Board members who are expert in such an
important part of the company's business.
o The Independent Nominees Fill Important Gaps in the Experience and
Expertise of the Board
Greg Parseghian has a deep understanding of all aspects of the
mortgage industry, including the production and servicing segments in
which the Company operates, as well as the secondary markets for
mortgage loans. Given our belief that significant changes need to be
made at PHH Mortgage in order to achieve profitability in all market
environments, we think it is extremely important at this juncture to
have an expert of Greg's stature sitting at the Board table when these
changes are discussed and acted on. In particular, we believe that
Greg's background as Chief Investment Officer of Freddie Mac will
enable him to make valuable contributions to the Company's efforts to
manage its mortgage servicing rights, which have resulted in
significant losses in recent quarters.
Allan Loren currently serves as an Executive Coach to CEOs and served
as both Chairman and Chief Executive Officer of Dun & Bradstreet,
where he was instrumental in refocusing D&B's business and creating
and implementing its "Blueprint for Growth" strategy. During his five
years leading that company, Allan grew D&B's earnings per share from
$1.71 to $2.98, increased free cash flow from $164 million to $239
million per year, and produced a total stockholder return of 378%.
Having served for five years as CEO of a well-known public company
that successfully underwent a turnaround during his tenure, we believe
that Allan's experience will be invaluable for PHH as it seeks to
change to meet the challenges it faces. In particular, Allan's
experience in turning around D&B positions him to provide valuable
input into efforts to cut costs and build a more flexible cost
structure at PHH. Allan also brings to the table an incredible
diversity of business experience as a former member of senior
management, in a variety of key positions, at American Express
Company, Galileo International, Apple Computer and Cigna.
As long-term holders of PHH common stock, owning 9.94% of the voting
shares outstanding, our interests are directly aligned with those of
our fellow stockholders. Neither of the Independent Nominees has had
in the past any financial or compensatory business or other
relationship with us, and we do not intend to establish any such
relationship with either of the Independent Nominees if they are
elected to the Board.
o Don't Be Deterred By Management's Scare Tactics
Management protests that by voting for the Independent Nominees you
will be removing from the Board CEO Terry Edwards and Chairman "Buzzy"
Krongard, whom they characterize as critically important to the
Board's continued leadership and stewardship functions. To the
contrary, we believe that Messrs. Edwards and Krongard 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. While we are seeking to remove Terry Edwards from the
Board, we are not seeking to remove him as PHH's corporate CEO. And
even if Mr. Edwards were to leave his position as corporate CEO, the
company would still have strong and capable senior managers at its
operating units - George Kilroy, who is President and CEO of PHH
Fleet, and Mark Danahy, who is President and CEO of PHH Mortgage.
-4-
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 in order to bring fresh ideas and
leadership qualities to PHH and 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.
VOTE THE GOLD PROXY CARD TO BRING FRESH VOICES
AND FRESH IDEAS TO THE PHH BOARD
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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