SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
(Amendment No. 9)
Under the Securities Exchange Act of 1934*
PHH Corporation
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(Name of Issuer)
Common Stock, par value $0.01 per share
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(Title of Class of Securities)
693320202
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(CUSIP Number of Class of Securities)
Alan Fournier
Pennant Capital Management, LLC
26 Main Street, Suite 203
Chatham, NJ 07928
(973) 701-1100
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(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
Copies to:
Michael A. Schwartz, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019-6099
(212) 728-8000
March 4, 2009
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(Date of Event which Requires
Filing of this Schedule)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of ss.ss. 240.13d-1(e), 240.13d-1(f) or 240.13d-1(g), check the
following box: [ ]
NOTE: Schedules filed in paper format shall include a signed original and five
copies of the schedule, including all exhibits. See Rule 240.13d-7 for other
parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934, as amended (the "Act") or otherwise subject to the liabilities of that
section of the Act but shall be subject to all other provisions of the Act
(however, see the Notes).
SCHEDULE 13D
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CUSIP No. 693320202 Page 2 of 10 Pages
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1 NAME OF REPORTING PERSON
Pennant Capital Management, LLC
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
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5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
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7 SOLE VOTING POWER
0
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 5,407,141
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
5,407,141
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11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
5,407,141
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12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
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13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.97%
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14 TYPE OF REPORTING PERSON*
OO
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SCHEDULE 13D
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CUSIP No. 693320202 Page 3 of 10 Pages
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1 NAME OF REPORTING PERSON
Alan Fournier
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2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP (a) [ ]
(b) [X]
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3 SEC USE ONLY
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4 SOURCE OF FUNDS
AF
----------- --------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDING IS REQUIRED
PURSUANT TO ITEMS 2(d) or 2(e) [ ]
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6 CITIZENSHIP OR PLACE OF ORGANIZATION
United States
--------------------- --------- ------------------------------------------------
7 SOLE VOTING POWER
0
--------- ------------------------------------------------
NUMBER OF 8 SHARED VOTING POWER
SHARES
BENEFICIALLY 5,407,141
OWNED BY --------- ------------------------------------------------
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 0
--------- ------------------------------------------------
10 SHARED DISPOSITIVE POWER
5,407,141
----------- --------------------------------------------------------------------
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH PERSON
5,407,141
----------- --------------------------------------------------------------------
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES
CERTAIN SHARES [ ]
----------- --------------------------------------------------------------------
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
9.97%
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14 TYPE OF REPORTING PERSON*
IN
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This Amendment No. 9 to Schedule 13D is filed on behalf of Pennant Capital
Management, LLC, a Delaware limited liability company ("Pennant Capital"), and
Alan Fournier, a United States citizen ("Mr. Fournier," and together with
Pennant Capital, the "Reporting Persons"), and further amends the Schedule 13D
originally filed on March 22, 2007, as amended by Amendment No. 1 thereto filed
on April 30, 2007, Amendment No. 2 thereto filed on June 20, 2007, Amendment No.
3 thereto filed on August 3, 2007, Amendment No. 4 thereto filed on August 10,
2007, Amendment No. 5 thereto filed on August 15, 2008, Amendment No. 6 thereto
filed on September 17, 2008, Amendment No. 7 thereto filed on October 9, 2008
and Amendment No. 8 thereto filed on November 25, 2008 (the "Schedule 13D") with
respect to the shares of common stock, par value $0.01 per share (the "Common
Stock"), of PHH Corporation, a Maryland corporation (the "Issuer"). Capitalized
terms used and not otherwise defined herein have the meanings ascribed thereto
in the Schedule 13D.
Item 4. Purpose of Transaction.
Item 4 of the Schedule 13D is hereby amended by adding the following:
The Reporting Persons originally acquired shares of Common Stock
because they believed the shares were undervalued and represented an attractive
investment opportunity. Notwithstanding the record loss for 2008 recently
reported by the Issuer, the Reporting Persons remain optimistic about the
Issuer's businesses. Among other things:
o The Issuer is the only private label mortgage outsourcer of size in
the United States, and in many cases it may be the only profitable
option for subscale institutions to offer a mortgage product to their
customers without outsourcing to a competitor. Historically,
outsourcing activity for the Issuer's mortgage origination segment
("PHH Mortgage Production") has tended to be strongest in the wake of
mortgage industry downturns, and the Reporting Persons expect that the
recent deep industry downturn will result in great opportunity for the
Issuer. As a result of this downturn, 11 of the top 30 industry
competitors as of 2006 have failed and 8 more have been acquired as of
December 2008, leaving the Issuer as the 5th largest retail originator
of residential mortgages and the 10th largest overall residential
mortgage originator. Moreover, with the recently improved market for
refinancing and the intense focus by the federal government on the
housing market crisis, including the recently announced Homeowner
Affordability and Stability Plan and changes to the GSE refinancing
requirements, the Reporting Persons believe the Issuer will have even
greater opportunities.
o The Issuer's fleet management services segment ("PHH Fleet") is the
2nd largest player in the fleet management industry. The Issuer's
largest competitor, GE Commercial Finance Fleet Services, has begun to
scale down its business in light of GE-specific balance sheet issues,
leaving plenty of opportunities for PHH Fleet to pick up profitable
new clients.
Despite these and other positives for the Issuer's businesses, the
Common Stock has recently traded at no more than only approximately 46% of the
Issuer's tangible net book value. Since the Issuer marks substantially all of
its assets to market or fair value, the Reporting Persons believe that tangible
net book value represents a reasonable proxy for runoff value and that the
market is therefore expressing the view that the Issuer is worth more "dead than
alive."
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The Reporting Persons believe, however, that the Issuer's prospects are
substantially undervalued by its current market capitalization and that they
considerably exceed the Issuer's potential runoff value. In that regard, the
Reporting Persons believe that the fair value of the Issuer is in excess of $40
per share based on a 10x multiple applied to potential earnings of approximately
$4 per share or more (resulting from an assumed 40 basis point pre-tax margin
for PHH Mortgage Production on annual volume of over $40 billion, a 10 basis
point pre-tax margin for the mortgage servicing segment of the Issuer ("PHH
Mortgage Servicing"), and PHH Fleet adjusted pre-tax earnings returning to
2007's level of $106 million).
The Reporting Persons believe that the Issuer's current depressed
market valuation reflects a dim view of the Issuer's stewardship by its board of
directors (the "Board"), a view that the Reporting Persons share. In a meeting
with Board Chairman A.B. "Buzzy" Krongard in August 2008, Mr. Krongard told
representatives of the Reporting Persons that the Board was "tired" and that
some directors were open to being replaced as a result of their efforts in
connection with the Issuer'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, the Reporting Persons
believe that the Board has poorly managed the Issuer through these difficult
times:
o FAILURE TO UNDERSTAND NORMALIZED EARNINGS POTENTIAL. Based on
discussions with members of the Board over the past year, it has
appeared to the Reporting Persons that the Board failed to develop a
view of the normalized earnings power of the Issuer. Both CEO Terence
Edwards and Board Chairman Krongard have been unable to describe to
the Reporting Persons the normalized earnings power of the Issuer, and
Mr. Edwards even stated that in this economy he is not sure that there
is such a thing as normalized earnings power. Subsequently, in
November 2008, a member of senior management ("Management") did tell
the Reporting Persons that the Board is looking into developing a view
as to the normalized earnings power of the Issuer. The Reporting
Persons believe that without such an understanding, the Board cannot
adequately set targets to track Management's performance, cannot
establish effective incentive structures for Management, cannot
explain to investors the Issuer's long-term earnings potential and
cannot make fully informed capital allocation decisions.
o LESS THAN EFFECTIVE MANAGEMENT INCENTIVES. The management incentive
plans for the Issuer, PHH Mortgage Production and PHH Fleet are based
upon the achievement of specified pre-tax income targets (after
minority interest) for the relevant unit. The Reporting Persons
believe that these incentive plans fail to provide proper incentives
for employees, particularly in the current market environment, because
they fail to distinguish between factors that employees can and cannot
control. For example, the PHH Mortgage Production management incentive
plan target for a particular year is typically set in March of that
year. Whether this target is met will depend on many factors that are
beyond the participating employees' control and not known ahead of
time, such as future interest rates and market-driven gain-on-sale
margins. In years where such factors make the target unattainable
despite the employees' best efforts and achievements, no award will be
paid; conversely, in years where such factors make attainment of the
target likely almost without regard to employee performance, an award
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will be made whether or not deserved. Particularly in a challenging
environment such as the one the Issuer has experienced in the last few
years, management incentive plans should be geared toward providing
incentives for employee performance by focusing on parameters that are
largely within their control, such as efficiency and cost structure.
o INSUFFICIENT FOCUS ON PROFITABILITY. In discussions with
representatives of the Board and Management since the beginning of
2008, it has been readily apparent to the Reporting Persons that until
recently the Board and Management have not focused on the
profitability of individual clients. In fact, in conversations with
Issuer representatives in November 2008, the Issuer conveyed its
suspicion that some of its clients were insufficiently profitable
across the business cycle. The Reporting Persons believe that for far
too long Management and the Board have focused on growing the Issuer
with too little regard for profitability. Without having appropriate
metrics in place, the Reporting Persons believe that Management and
the Board have been unable to evaluate whether existing clients are
sufficiently profitable and whether potential new clients would be
sufficiently profitable to pursue.
o TOO SLOW TO REDUCE MORTGAGE PRODUCTION COSTS. In the last three years,
PHH Mortgage Production has not had a single profitable quarter, and
was only able to break even in the fourth quarter of 2008. While
Management has, along the way, made relatively modest cuts in PHH
Mortgage Production expenses, the Reporting Persons believe that
Management was slow to address profitability concerns, especially in
2008 after termination of the merger agreement with General Electric
Capital Corporation and as it became ever more clear that the
deepening housing and mortgage crisis would lead to lower mortgage
origination volumes. In the last several months, some recovery in
origination volumes and healthier gain-on-sale margins have led to
profitable operations for PHH Mortgage Production, but the Reporting
Persons believe that this goal should have been achieved earlier, or
losses should have been reduced, with more aggressive cost cutting on
the part of Management.
o TOO SLOW TO REDUCE FLEET FUNDING COSTS. PHH Fleet relies on external
financing to purchase vehicles for its clients, and its client
agreements use published indices to pass these financing costs through
to its clients. In the past, these indices have tended to track PHH
Fleet's funding costs, but in the second half of 2007, when the
asset-backed funding markets suffered severe disruption, these indices
no longer reflected the Issuer's true costs of funding and began to
significantly reduce the profitability of PHH Fleet. While Management
has continuously disclosed this adverse impact on the Issuer in its
public filings since at least November 2007, the Board failed to
ensure that concrete steps were taken to mitigate this impact until
well into the fourth quarter of 2008.
o PUBLIC COMMUNICATIONS FAILURES. With short-term results falling far
short of the Issuer's long-term earnings potential in part due to the
market environment, it is critically important for Management to
educate investors about the Issuer's long-term earnings potential. The
Reporting Persons have been encouraging Management to provide such
goals for more than a year, without success. Management's failure to
communicate long-term earnings goals has made it exceedingly difficult
for investors to value the Issuer
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based on its underlying earnings power and may account, in part, for
the Issuer's depressed market valuation.
Management's failure to communicate the Issuer's long-term earnings
potential may also jeopardize the ability of PHH Mortgage Production
and PHH Fleet to recruit and retain outsourcing clients in today's
environment. With the Issuer's shares trading at a steep discount to
tangible book value, the outsourcing market may view the Issuer as
being at risk of liquidation. Since stability of an outsourcing
partner is critical to businesses that outsource important business
functions, this perception could significantly affect confidence in
the Issuer, may negatively affect the signing of new clients and may
motivate existing clients to seek outsourcing alternatives that they
view to be more stable.
Another communications failure by Management is its failure to
highlight the critical differences between the Issuer and failed and
failing financial institutions, some of which are or have been
competitors of the Issuer. Unlike many competitors of the Issuer that
take substantial balance sheet risks in their business models, the
Issuer is a service business that sells substantially all of its
mortgage production and passes most fleet funding costs through to its
clients. In several conversations, Board Chairman Krongard has even
justified the Issuer's performance by making comparisons to Lehman
Brothers, distressed balance sheet lenders, and General Motors. The
balance sheet risk inherent in these businesses is not comparable to
that of the Issuer, and the Reporting Persons believe that such
comparisons only serve to perpetuate the Issuer's depressed valuation.
Moreover, in earnings conference calls, CEO Edwards has consistently
referred to industry problems without highlighting that the Issuer is
an outsourced service provider, not a balance sheet lender, and as
such the impact of these problems on the Issuer is not comparable to
that of the many troubled financial concerns that make the news
headlines on a daily basis.
For more than a year, the Reporting Persons have made consistent
efforts to encourage the Board and Management to focus more keenly and
effectively on the creation of long-term stockholder value. The Reporting
Persons believe that, as the U.S. and global financial crisis has deepened, the
Issuer has been faced with significant challenges that the Board and Management
have failed to meet and has been offered valuable opportunities that the Board
and Management have failed to embrace. As a result of these past concerns, the
Board's and Management's lack of responsiveness to the Reporting Persons'
suggestions, and the concern that many of the failures of the Board and
Management have not been addressed for the future, the Reporting Persons intend
to nominate Messrs. Allan Loren and Greg Parseghian (the "Independent
Candidates") for election as directors of the Issuer at the 2009 Annual Meeting
of Stockholders (the "2009 Annual Meeting").
Allan Z. Loren has a proven track record of creating shareholder value
and implementing change. As Chairman and Chief Executive Officer of The Dun
& Bradstreet Corporation ("D&B") from 2000 through 2004 and as Chairman in
2005, Mr. Loren was instrumental in refocusing D&B's business and creating
and implementing D&B's "Blueprint for Growth" strategy. During his five
years leading the company, Mr.
- 7 -
Loren 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%.
Gregory J. Parseghian has deep experience in the financial and
mortgage industries. After serving in executive positions at First Boston
Corp., BlackRock Financial Management and Salmon Brothers from 1982 through
1995, Mr. Parseghian became Chief Investment Officer of The Federal Home
Loan Mortgage Corporation ("Freddie Mac") in 1996, rising to Chief
Executive Officer of Freddie Mac before he left that company at the end of
2003.
Neither of the Independent Candidates has had in the past any
financial or compensatory business or other relationship with the Reporting
Persons, and the Reporting Persons do not intend to establish any such
relationship with either of the Independent Candidates if they are elected to
the Board. The Reporting Persons have identified the Independent Candidates as
nominees for the Board based on their belief that the Independent Candidates
will bring to the Board substantial industry and operating experience and that,
as outsiders elected by the Issuer's stockholders without having been
hand-picked by the current Board, the Independent Candidates will bring a needed
fresh perspective to the Board.
In nominating the two Independent Candidates to a Board that currently
consists of seven directors, the Reporting Persons are not seeking to control
the management and policies of the Issuer. The Reporting Persons believe that
the Board should manage and set policy for the Issuer, but that the Board should
be responsive to the Issuer's stockholders and that the presence on the Board of
directors not nominated by the Board will encourage greater responsiveness and
focus on stockholder value.
In exploring the feasibility of developing a proposal to nominate
candidates to the Board, the Reporting Persons sought the confirmation of the
State of New York Insurance Department (the "Department") that the solicitation
and voting of proxies to elect two independent candidates to the Board would not
cause the Reporting Persons to "control" Atrium Insurance Corporation, a
subsidiary of the Issuer ("Atrium") within the meaning of New York Insurance Law
ss.1501(a)(2). On March 4, 2009, the Reporting Persons received such
confirmation (the "Determination Letter") subject to certain restrictions from
the Department. The Determination Letter is more fully described in Item 6
below.
Except as set forth above, the Reporting Persons do not have any
present plans or proposals that relate to or would result in any of the matters
required to be described in Item 4 of Schedule 13D. The Reporting Persons do not
intend to take any steps that would lead to a determination that they "control"
the Issuer or its mortgage guarantee insurance subsidiary, Atrium, within the
meaning of the New York Insurance Law. The Reporting Persons may, at any time,
review and reconsider their position and/or change their purpose and/or
formulate plans or proposals with respect to such matters.
* * *
In connection with their intended proxy solicitation, Pennant Capital
Management, LLC and certain of its affiliates intend to file a proxy statement
with the Securities
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and Exchange Commission (the "SEC") to solicit stockholders of the Issuer.
PENNANT CAPITAL MANAGEMENT, LLC STRONGLY ADVISES ALL STOCKHOLDERS OF THE ISSUER
TO READ THE PROXY STATEMENT WHEN IT BECOMES AVAILABLE BECAUSE IT WILL CONTAIN
IMPORTANT INFORMATION, INCLUDING INFORMATION RELATING TO THE PARTICIPANTS IN ANY
SUCH PROXY SOLICITATION. SUCH PROXY STATEMENT, WHEN FILED, AND ANY OTHER
RELEVANT DOCUMENTS WILL BE AVAILABLE AT NO CHARGE ON THE SEC'S WEBSITE AT
HTTP://WWW.SEC.GOV.
PENNANT CAPITAL PARTICIPANT INFORMATION. In accordance with Rule
14a-12(a)(1)(i) of the Securities Exchange Act of 1934, as amended, the
following persons are anticipated to be, or may be deemed to be, participants in
any such proxy solicitation by 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., Mr. Fournier, Allan Loren and Greg Parseghian. Certain of these persons
hold direct or indirect interests as follows: Pennant Capital Management, LLC
may be deemed to beneficially own 5,407,141 shares of Common Stock; Mr. Fournier
may be deemed to beneficially own 5,407,141 shares of Common Stock; Pennant
Offshore Partners, Ltd. may be deemed to beneficially own 1,065,135 shares of
Common Stock; Pennant Onshore Partners, LP may be deemed to beneficially own
311,318 shares of Common Stock; Pennant Onshore Qualified, LP may be deemed to
beneficially own 661,584 shares of Common Stock; Pennant Spinnaker Fund LP may
be deemed to beneficially own 466,814 shares of Common Stock; Pennant Windward
Fund, LP may be deemed to beneficially own 1,149,487 shares of Common Stock;
Pennant Windward Fund, Ltd. may be deemed to beneficially own 1,752,803; and Mr.
Mr. Loren and Greg Parseghian each have an interest in being nominated and
elected as a director of the Issuer.
Item 5. Interest in Securities of the Issuer.
Paragraph (c) of Item 5 of the Schedule 13D is hereby amended by adding the
following:
(c) Appendix I hereto sets forth certain information with respect to
transactions by the Funds (at the direction of Pennant Capital and Mr. Fournier)
in Common Stock during the past 60 days. Except as set forth on Schedules A,
during the past 60 days there were no transactions in the Common Stock effected
by the Reporting Persons, nor, to the best of their knowledge, any of their
directors, executive officers, general partners or members.
Item 6. Contracts, Arrangements, Understandings or Relationships with Respect
to Securities of the Issuer.
Item 6 of the Schedule 13D is hereby amended by adding the following:
As discussed in Item 4, in exploring the feasibility of developing a
proposal to nominate candidates to the Board, the Reporting Persons sought the
confirmation of the Department that the solicitation and voting of proxies to
elect two independent candidates to the
- 9 -
Board would not cause the Reporting Persons to "control" Atrium within the
meaning of New York Insurance Law ss.1501(a)(2). On March 4, 2009, the Reporting
Persons received the Determination Letter from the Department confirming that
the solicitation and voting of proxies to elect two independent candidates to
the Board would not cause the Reporting Persons to "control" Atrium within the
meaning of New York Insurance Law ss.1501(a)(2) and permitting the Reporting
Persons, among other things, to solicit revocable proxies for use at the 2009
Annual Meeting provided, that the (i) proxies are revocable; (ii) proxies are
limited in duration and will be valid only until the conclusion of the 2009
Annual Meeting; (iii) proxies are limited in scope, in that they will not
provide the Reporting Persons with discretionary authority as to the casting of
votes in the election of directors; (iv) Reporting Persons maintain their
ownership of the voting stock below 10%; (v) Reporting Persons maintain a total
economic interest in the Issuer of less than 15%; (vi) Reporting Persons will
have no right to replace any Independent Candidate that may resign or leave the
Board for any reason; (vii) Reporting Persons will not have any special right of
access to the Independent Candidates and will not seek to obtain any
confidential Issuer information from the Independent Candidates; (viii) neither
the Reporting Persons nor any of their personnel, agents, or designees will seek
or accept a seat on the Board or observer rights to Board meetings or
proceedings; (ix) Reporting Persons will not enter into business transactions
with the Issuer without the prior approval of the State of New York Insurance
Department; and (x) Reporting Persons will not enter into any agreements with
any other stockholders of the Issuer to act in concert with respect to the
acquisition, holding, voting or disposition of the Issuer's voting stock.
Item 7. Material to be Filed as Exhibits.
Item 7 to the Schedule 13D is hereby amended to add the following:
Appendix I: Transactions Effected by the Funds in Common Stock During the
Past Sixty Days.
Appendix II: Determination of Non-Control of Atrium Insurance Corporation,
dated March 4, 2009, from the State of New York Insurance
Department.
[Signatures on following page]
- 10 -
SIGNATURES
After reasonable inquiry and to the best of our knowledge and belief,
the undersigned certify that the information set forth in this statement is
true, complete and correct.
Dated: March 9, 2009
PENNANT CAPITAL MANAGEMENT, LLC
By: /s/ Alan Fournier
-------------------------------
Alan Fournier, Managing Member
By: /s/ Alan Fournier
-------------------------------
Alan Fournier
[SIGNATURE PAGE TO AMENDMENT NO. 9 TO SCHEDULE 13D
WITH RESPECT TO PHH CORPORATION]
Appendix I
TRANSACTIONS EFFECTED BY THE FUNDS IN COMMON STOCK DURING THE PAST
SIXTY DAYS
(All transactions were regular market transactions effected on the NYSE)
Date Transaction Shares Price Per Share($)
---- ----------- ------ ------------------
--------------- ------------------- --------------------- ----------------------
1/2/09 SELL (87,360) 12.110
--------------- ------------------- --------------------- ----------------------
1/2/09 BUY 87,360 12.125
--------------- ------------------- --------------------- ----------------------
2/2/09 SELL (12,800) 9.615
--------------- ------------------- --------------------- ----------------------
2/2/09 BUY 12,800 9.625
--------------- ------------------- --------------------- ----------------------
3/2/09 SELL (267,900) 11.030
--------------- ------------------- --------------------- ----------------------
3/2/09 BUY 267,900 11.070
--------------- ------------------- --------------------- ----------------------
Appendix II
-----------
[SEAL]
STATE OF NEW YORK
INSURANCE DEPARTMENT
25 BEAVER STREET
NEW YORK, NEW YORK 10004
David A. Paterson Eric R. Dinallo
Governor Superintendent
March 4, 2009
Keith Richardson
Chief Financial Officer
Pennant Capital Management LLC
26 Main Street, Suite 203
Chatham, New Jersey 07928
Re: Supplemental Application by Pennant Capital Management LLC,
Pennant General Partner, L.L.C., and Alan Fournier for
Determination of Non-Control of Atrium Insurance Corporation
------------------------------------------------------------
Dear Mr. Richardson:
I write in response to your letter (the "Letter") and Supplement to
Disclaimer of Control (the "Supplement"), each dated January 26, 2009, which you
submitted on behalf of Pennant Capital Management LLC, Pennant General Partner,
L.L.C., and Mr. Alan Fournier (collectively, the "Applicants") regarding a
proposed solicitation of proxies in connection with the election of directors to
the Board of Directors of PHH Corporation ("PHH"), a publicly traded Maryland
corporation which owns 100% of the shares of Atrium Insurance Corporation
("Atrium"), a New York domestic mortgage guaranty insurer. By letter dated
August 12, 2008, the Insurance Department determined that the Applicants would
not be deemed to control Atrium within the meaning of New York Insurance Law ss.
1501(a)(2) (McKinney 2000) by virtue of their interests in PHH. You now seek a
supplemental determination that the proposed solicitation of the below-described
proxies by the Applicants would not cause the Department to find Applicants in
control of Atrium within the meaning of Insurance Law ss.1501(a)(2).
Applicants together indirectly own 9.97% of the outstanding common stock of
PHH. Applicants also possess additional economic interests in PHH through their
interests in certain cash-settled swap transactions and their ownership of
certain Convertible Senior Notes, which you have stated total 2.2% and 2.8%,
respectively, with the result that Applicants' aggregate economic interest in
PHH totals less than 15%. As noted, the Department has concluded that the
possession of these interests do not cause the Applicants to possess control of
Atrium. You have submitted the Supplement to the Department because the
Applicants propose to nominate two independent candidates ("Independent
Candidates") for election to PHH's seven-member Board of Directors (the "Board")
at PHH's 2009 Annual Meeting, and to solicit proxies from other PHH
Keith Richardson
March 4. 2009
Page 2 of 3
shareholders in support of such nominees. The Applicants represent that the
proposed Independent Candidates(1) will be completely unaffiliated with the
Applicants.
The PHH Board is comprised of seven directors serving staggered terms of
three years each. At PHH's 2009 Annual Meeting, three of PHH's directors are to
be elected for terms set to expire at the 2012 Annual Meeting. Under the
proposal, the Applicants will solicit proxies, which would be revocable and
limited in time and purpose to the election of the proposed nominees at the
Annual Meeting, and would expire immediately following the Annual Meeting.
Insurance Law ss. 1501(a)(2) defines "control" as follows:
(2) "Control", including the terms "controlling",
"controlled by" and "under common control with", means the
possession direct or indirect of the power to direct or
cause the direction of the management and policies of a
person, whether through the ownership of voting securities,
by contract (except a commercial contract for goods or
non-management services) or otherwise; but no person shall
be deemed to control another person solely by reason of his
being an officer or director of such other person. Subject
to subsection (c) hereof, control shall be presumed to exist
if any person directly or indirectly owns, controls or holds
with the power to vote ten percent or more of the voting
securities of any other person.
Notably, New York's definition of control differs from that of many other
states in that the holding of proxies is not per se conclusive of control. For
example, the definition of "control" under the insurance laws of California,
Texas, Illinois and Massachusetts includes a presumption that the holding of
proxies to vote 10% or more of the voting shares of a company constitutes
control. See Cal. Ins. Code ss.1215(b); Texas Ins. Code ss. 7.202(a)(5); Ill.
Comp. Stat. ss. 5/131.1(b); Mass. Gen. Laws Ch. 175, ss. 206. Nevertheless, New
York Insurance Law ss. 1501(a)(2) provides that control can arise from "the
power to direct or cause the direction of the management and policies of a
person ... by contract ... or otherwise...." Control can be held by contract in
a number of ways, including a proxy to vote shares, whether obtained through a
broad proxy solicitation or otherwise. Under the proposal that you present, the
Applicants would solicit proxies, which could then lead to the Applicants
directly or indirectly holding the power to vote ten percent or more of the
voting securities of PHH, at least for a short period of time.
Still, not every proxy solicitation constitutes a triggering event within
the meaning of Article 15 of the Insurance Law that requires a party to file for
approval of acquisition of control pursuant to Insurance Law ss. 1506 (or to
seek an appropriate exemption). In the Department's view, the Applicants'
proposal to nominate two Independent Candidates to PHH's board and to solicit
revocable proxies for their election will not cause Applicants to be considered
to control PHH within the meaning of Insurance Law ss. 1502(a)(2), provided
that:
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(1) Only one prospective candidate, Mr. Greg Parseghian, has been identified to
date.
Keith Richardson
March 4. 2009
Page 3 of 3
1. The proxies are revocable;
2. The proxies are limited in duration and will be valid only until the
conclusion of PHH's 2009 Annual Meeting of Shareholders:
3. The proxies are limited in scope, in that they will not provide
Applicants with discretionary authority as to the casting of votes in
the election of directors;
4. The Applicants maintain their ownership of PHH voting stock below 10%;
5. The Applicants maintain a total economic interest in PHH of less than
15%;
6. The Applicants will have no right to replace any Independent Candidate
that may resign or leave the Board for any reason;
7. The Applicants will not have any special right of access to the
Independent Candidates and will not seek to obtain any confidential
PHH information from the Independent Candidates;
8. Neither the Applicants nor any of their personnel, agents, or
designees will seek or accept a seat on the Board or observer rights
to Board meetings or proceedings;
9. The Applicants will not enter into business transactions with PHH
without the prior approval of the Department; and
10. The Applicants will not enter into any agreements with any other
shareholders of PHH to act in concert with respect to the acquisition,
holding, voting or disposition of PHH's voting stock.
Assuming that the Applicants comply with the above-enumerated conditions.
and based upon the description of the proposed solicitation of proxies and the
other representations set forth in the Letter and Supplement, the Department
will not consider the proposed solicitation and voting of proxies as causing the
Applicants to control PHH within the meaning of Insurance Law ss. 1501(a)(2).
This conclusion is strictly limited to the proposed solicitation and voting of
proxies as described in the Letter and Supplement, and does not extend to any
other activity, which may result in a finding of control pursuant to Insurance
Law ss.1501.
Very truly yours,
Martha A. Lees
Deputy General Counsel
cc: Leah Campbell, Esq.
Willkie Farr & Gallagher LLP
787 Seventh Avenue
New York, NY 10019
Kermitt J. Brooks
Robert H. Easton
Larry Levine