Fitch Ratings has downgraded Finance of America’s long-term issuer default rating due to the high costs incurred during the company’s repositioning. Operational losses related to Finance of America’s acquisition of American Advisors Group and a decline in tangible equity were the main factors driving the downgrade. However, the company is backed by fund affiliates of Blackstone with a higher investment-grade rating, which mitigates some of the concerns.
The rating action emphasizes the importance of Finance of America’s pivot away from traditional residential lending. The company’s strong strategic position in a consolidating reverse-mortgage market is a positive for its ratings. However, there are concerns about how its weaker financial position will affect its ability to borrow. Funding agreements rely on the strength of certain company financials, although Finance of America has received waivers from providers in this regard.
Finance of America relies on a mix of financing options, including warehouse financing, secured lines of credit, nonrecourse debt, and unsecured notes. Many nonbank lenders depend on warehouse financing, which may be affected by proposed changes to bank capital rules and the exit of banks like Comerica from the space. Longer funding terms, more committed lending facilities, or increased liquidity could improve Fitch’s view of Finance of America.
In summary, Finance of America’s repositioning has resulted in a downward revision to its long-term issuer default rating by Fitch Ratings. While the company is backed by fund affiliates of Blackstone, the downgrade reflects operational losses and a decline in tangible equity. The rating action underscores the importance of shifting away from traditional residential lending for Finance of America, but concerns remain about its weaker financial position and ability to borrow. The company relies on a mix of financing options, and questions have arisen about the availability of warehouse financing due to potential changes in bank capital rules and the exit of banks like Comerica.
