Michael Blitzer’s Kingstown Capital Management disclosed a large new activist position last week in Home Loan Servicing Solutions Ltd (NASDAQ:HLSS), with 3.6 million shares representing 5.1% of that company’s common stock. In addition, it revealed its intention to fight against that company’s planned sale to New Residential Investment Corp (NYSE:NRZ) for $1.3 billion, an acquisition that has already been approved by the Board of Directors of each company. We’ll also take a look at the top three picks in Kingstown’s portfolio heading into 2015, as well as its other recent move.
New York-based Kingstown Capital was founded by Blitzer in 2006, and describes itself as a “value-oriented investment partnership that focuses on special situation securities across the capital structure”. The fund’s equity portfolio was valued at $689 million at the end of the year, up slightly from $684 million at the end of the previous quarter, but below its all-time high of $806 million at the end of 2013.
The fund has been aggressive early in 2015. In addition to the the newly disclosed HLSS position valued at $66.28 million, the fund also reopened a position on Ocwen Financial Corp (NYSE:OCN), which was its largest position at the end of the third quarter with 4.5 million shares, but which it sold out of completely during the fourth quarter. In early February, Kingstown revealed reopening a 12 million share position in Ocwen, as the shares of that company continue to freefall, down 85.32% since the start of 2014. The renewed position is now valued at $97.68 million, making it once again the largest in Kingstown’s portfolio, according to end-of-2014 figures. The position in HLSS meanwhile would be the fourth largest.
In the February 24 filing concerning Home Loan Servicing Solutions Ltd (NASDAQ:HLSS), Kingstown revealed in its statement of purpose that it does “not believe a transaction at GAAP book value adequately compensates the Issuer’s shareholders for the value of its assets, which have historically traded between 1.2x – 1.3x book value according to the Issuer’s September 2014 Investor Presentation.” It went on to add that some of the assumptions underlying the issuer’s book value were conservative, and not consistent with the recent performance of HLSS.
The transaction values Home Loan Servicing Solutions Ltd (NASDAQ:HLSS) at $18.25 per share, a 9% premium on HLSS’s closing price of $16.76 on February 20, the day of the announcement. Shares leapt to $18.35 the following day. Kingstown began acquiring its position in HLSS beginning on January 13, well before the sale of the company was announced.