Item
8.01. Other Events.
Accounting
Matters
On
March
1, 2006, March 17, 2006, May 11, 2006, June 12, 2006, July 21, 2006 and
August
16, 2006, we filed Current Reports on Form 8−K (collectively, the “Form 8-Ks”)
with the SEC indicating that we would not meet the SEC deadline to file
our
Annual Report on Form 10-K for the year ended December 31, 2005 (the “2005 Form
10-K”) because we had not yet finalized our financial statements for the quarter
and the year ended December 31, 2005 and the audit of our 2005 financial
statements was and is ongoing. We expect to file the 2005 Form 10-K on
or before
October 31, 2006. We also previously disclosed that the filing of our Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2006 and June 30,
2006
would be delayed beyond their respective SEC filing deadlines. At this
time, we
expect that we will also be unable to meet the SEC deadline for the filing
of
our Quarterly Report on Form 10-Q for the quarter ended September 30, 2006.
We
are unable at this time to provide an expected date for the filing of our
Quarterly Reports on Form 10-Q.
As
previously disclosed in our Current Report on Form 8-K filed on July 21,
2006,
the Audit Committee of our Board of Directors concluded on July 17, 2006
that
our audited financial statements for the years ended December 31, 2001,
2002,
2003 and 2004 and our unaudited quarterly financial statements for the
quarters
ended March 31, 2004, June 30, 2004, September 30, 2004, March 31, 2005,
June
30, 2005 and September 30, 2005 (collectively, the “Prior Financial Statements”)
and the related reports of our independent registered public accounting
firm
should no longer be relied upon because of errors in the Prior Financial
Statements. At that time, we determined that the correction of these errors
was
material and would require the restatement of certain of our Prior Financial
Statements. The restatement adjustments will correct certain historical
accounting policies to conform those policies to accounting principles
generally
accepted in the U.S. (“GAAP”) and correct errors made in the application of
GAAP, including but not limited to errors described in the Form 8-Ks and
in this
Current Report on Form 8-K.
We
have
determined that we will restate our audited financial statements and related
disclosures for the years ended December 31, 2003 and 2004 in our 2005
Form
10-K. Certain restatement adjustments affecting our audited annual financial
statements for periods prior to December 31, 2003, will also be reflected
in the
Selected Consolidated Financial Data appearing in the 2005 Form 10-K. Certain
restatement adjustments also affect our unaudited quarterly financial statements
for the quarters ended March 31, 2004, June 30, 2004, September 30, 2004,
March
31, 2005, June 30, 2005 and September 30, 2005 previously filed in our
Quarterly
Reports on Form 10-Q. Such restatement adjustments will similarly be reflected
in the Selected Unaudited Quarterly Financial Data appearing in our 2005
Form
10-K and, with respect to the quarters ended March 31, 2005, June 30, 2005
and
September 30, 2005, will be reflected in our Quarterly Reports on Form
10-Q for
the quarters ended March 31, 2006, June 30, 2006 and September 30, 2006,
which
we plan to file subsequent to the filing of the 2005 Form 10-K.
As
part
of this determination, we have concluded that we will not amend our
previously-filed Annual Reports on Form 10-K or Quarterly Reports on Form
10-Q
for periods affected by the restatement adjustments, and accordingly the
financial statements and related financial information contained in such
reports
should not be relied upon even after we file our 2005 Form 10-K and our
2006
Quarterly Reports on Form 10-Q. We have discussed the aforementioned restatement
matters with the Audit Committee of our Board of Directors and Deloitte
&
Touche LLP, our independent registered public accounting firm.
Incremental
Fees and Expenses Related to Completion of Financial
Statements
We
continue to make the completion of our financial statements for fiscal
year 2005
and the related SEC filings a top priority. To this end, we have devoted
substantial internal and external resources to the completion of our 2005
financial statements and related matters. We expect that as a result of
these
efforts, along with efforts to complete our assessment of internal controls
over
financial reporting as of December 31, 2005, as required by Section 404
of the
Sarbanes-Oxley Act of 2002, we will incur incremental fees and expenses
for
additional auditor services, financial and other consulting services, legal
services and liquidity waivers of approximately $30 million to $35 million.
Through September 25, 2006, we have been invoiced for incremental fees
and
expenses of approximately $27 million, of which we expect $7 million will
be
recorded in 2005. While we do not expect fees and expenses relating to
the
preparation of our financial results for future periods to remain at this
level,
we expect that these fees and expenses will remain relatively higher than
historical fees and expenses in this category for the next several
quarters.
Liquidity
and Waivers
We
continue to believe we have adequate liquidity to fund our operating cash
needs.
We have previously obtained certain waivers and continue to seek additional
waivers extending the date for delivery of our audited financial statements,
or
the audited financial statements of our subsidiaries, and other documents
related to such financial statements to certain lenders, trustees and other
third parties in connection with certain of our financing, servicing, hedging
and related agreements and instruments (collectively, our “Financing
Agreements”).
Results
of Tender Offer and Consent Solicitation for Public
Notes
On
September 14, 2006, we concluded our previously-announced tender offer
and
consent solicitation (the “Offer”) for certain public notes (the “Public Notes”)
issued
under the Indenture, dated as of November 6, 2000 by and between PHH and
J.P.
Morgan Trust Company, N.A., as successor trustee for Bank One Trust Company,
N.A. (as amended and supplemented to the date hereof, the
“Indenture”).
We
announced that
we
received
consents on behalf of approximately $585 million and tenders on behalf
of
approximately $416 million of the aggregate principal amount of the $1.081
billion of the Public Notes (together representing approximately 93% of
the
outstanding principal amount thereof). A
copy of
the press release dated September 14, 2006 is attached as Exhibit 99.1
to this
Current Report on Form 8-K and incorporated herein by reference.
Upon
receipt of the required consents related to the Offer, we entered into
Supplemental
Indenture No. 4 (the “Supplement”) to the Indenture governing the Public Notes
with the trustee on August 31, 2006, pursuant to which the deadline for
the
delivery of our financial statements to the trustee was extended to December
31,
2006, if necessary. In addition, the Supplement provided for the waiver
of all
defaults that have occurred prior to August 31, 2006 relating to the Company's
financial statements and other delivery requirements. A
copy of
the Supplement is attached as Exhibit 10.1 to our Current Report on Form
8-K as
filed with the SEC on September 1, 2006.
Waivers
We
obtained waivers under our $1.3 billion Five Year Competitive Advance and
Revolving Credit Agreement, $500 million Revolving Credit Agreement, $750
million Credit Agreement and Bishop's Gate Residential Mortgage Trust Liquidity
Agreement (the “Bishop’s Gate Liquidity Agreement”) on September 19, 2006 which
waive certain potential breaches of covenants under those instruments and
extend
the deadlines (the “Extended Deadlines”) for the delivery of our financial
statements and other documents to the various lenders under those instruments.
With respect to our 2005 Form 10-K, the Extended Deadline will be on or
before
November 30, 2006 and with respect to our Quarterly
Reports on Form 10-Q for the quarters ended March 31, 2006, June 30, 2006
and
September 30, 2006,
the
Extended Deadline will be on or before December 29, 2006. No waiver has
been
obtained for the extension of the delivery date for the Chesapeake Funding,
LLC,
annual servicing report because we expect to provide this report to the
lenders
on or before the existing September 30, 2006 deadline.
As
previously disclosed in our Current Report on Form 8-K filed on August
16, 2006,
we previously received all of the required approvals and executed a Supplemental
Indenture dated August 11, 2006 to the Base Indenture dated December 11,
1998
(the “Bishop’s Gate Indenture”) between the Trustee and Bishop’s Gate, a
consolidated special purposed entity, waiving any event of default arising
as a
result of the failure to provide the Trustee with our and certain other
audited
annual and unaudited quarterly financial statements as required under the
Bishop’s Gate Indenture. The effectiveness of this waiver has now been further
modified by approvals obtained from the lenders under the Bishop’s Gate
Liquidity Agreement whereby the Extended Deadlines now apply to the delivery
dates for our and certain other audited annual and unaudited quarterly
financial
statements under the Bishop’s Gate Indenture.
Under
certain of our Financing Agreements, the lenders or trustees have the right
to
notify us if they believe we have breached a covenant under the operative
documents and may declare an event of default. If one or more notices of
default
were to be given, we believe we would have various periods in which to
cure such
events of default. If we did not cure the events of default or obtain necessary
waivers within the required time periods or certain extended time periods,
the
maturity of some of our debt could be accelerated and our ability to incur
additional indebtedness could be restricted. Moreover, defaults under certain
of
our Financing Arrangements would trigger cross-default provisions under
certain
of our other Financing Arrangements. We
have
not received any notices of default accelerating our payment of our currently
outstanding indebtedness.
There
can
be no assurance that any additional waivers under any of our Financing
Agreements will be received on a timely basis, if at all, or that any waivers
obtained, including the waivers we have already obtained as described above,
will extend for a sufficient period of time to avoid an acceleration event,
an
event of default or other restrictions on our business operations. Moreover,
failure to obtain waivers could be material and adverse to our business,
liquidity and financial condition.
We
have
obtained certain waivers and continue to seek additional waivers extending
the
date for delivery of the audited financial statements of our subsidiaries
and
other documents related to such financial statements to certain regulators,
investors in mortgage loans and other third parties in order to satisfy
state
mortgage licensing regulations and certain contractual requirements. Certain
of
our waivers with state mortgage licensing regulators expire on September
30,
2006. We
expect
to complete the preparation of the consolidated financial statements of
PHH
Mortgage Corporation and its subsidiaries by September 30, 2006 in connection
with these regulatory and contractual requirements. We
will
continue to seek similar waivers as a result of the aforementioned accounting
matters as may be necessary. There can be no assurance that any required
waivers
will be received on a timely basis, if at all, or that any waivers obtained,
including the waivers we have already obtained, will extend for a sufficient
period of time to avoid restrictions on our business operations. The failure
to
obtain waivers from investors in mortgage loans and other parties or the
loss of
licenses to do mortgage business in one or more states could be material
and
adverse to our business, liquidity and financial condition.
Item
9.01. Financial Statements and Exhibits.
______
*
Confidential
treatment has been requested for certain portions of this Exhibit pursuant
to
Rule 24b-2 of the Exchange Act, which portions have been omitted and filed
separately with the SEC.
Forward-Looking
Statements
This
Current Report on Form 8-K contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. These statements
are
subject to known and unknown risks, uncertainties and other factors which
may
cause our actual results, performance or achievements to be materially
different
from any future results, performance or achievements expressed or implied
by
such forward-looking statements. You should understand that these statements
are
not guarantees of performance or results and are preliminary in nature.
Statements preceded by, followed by or that otherwise include the words
“believes”, “expects”, “anticipates”, “intends”, “projects”, “estimates”,
“plans”, “may increase”, “may result”, “will result”, “may fluctuate” and
similar expressions or future or conditional verbs such as “will”, “should”,
“would”, “may” and “could” are generally forward-looking in nature and not
historical facts. For example, the statement that we expect to file our
Form
10-K on or before October 31, 2006 and our statements of expectation regarding
incremental fees and expenses for additional auditor services, financial
and
other consulting services, legal services and liquidity waivers are
forward-looking statements.
You
should consider the areas of risk described under the heading “Cautionary Note
Regarding Forward-Looking Statements” in our periodic reports under the
Securities Exchange Act of 1934, as amended, and those risk factors included
as
Exhibit 99 thereto, titled “Risk Factors Affecting our Business and Future
Results,” in connection with any forward-looking statements that may be made by
us and our businesses generally. Except for our ongoing obligations to
disclose
material information under the federal securities laws, we undertake no
obligation to release publicly any updates or revisions to any forward-looking
statements, to report events or to report the occurrence of unanticipated
events
unless required by law.