Rating Action: Moody’s upgrades of PennyMac Financial Services Inc.’s unsecured bond rating to B1; outlook revised to positiveGlobal Credit Research – 08 Feb 2021New York, February 08, 2021 — Moody’s Investors Service, (“Moody’s”) has upgraded the senior unsecured bond rating of PennyMac Financial Services Inc. (PFSI) and the issuer rating of PFSI’s subsidiary, Private National Mortgage Acceptance Co, LLC. (Private National), to B1 from B2. In addition, Moody’s has affirmed the Ba3 corporate family rating of PFSI, and has revised the outlooks to positive from stable for both Private National and PFSI.Moody’s also has assigned a B1 senior unsecured bond rating to PFSI’s announced $500 million unsecured debt issuance maturing in 2029…Issuer: PennyMac Financial Services Inc…..LT Corporate Family Rating, Affirmed Ba3….Senior Unsecured Regular Bond/Debenture, Upgraded to B1 from B2….Senior Unsecured Regular Bond/Debenture, Assigned B1..Issuer: Private National Mortgage Acceptance Co, LLC…. LT Issuer Rating, Upgraded to B1 from B2Outlook Actions:..Issuer: PennyMac Financial Services Inc…..Outlook, Changed To Positive From Stable..Issuer: Private National Mortgage Acceptance Co, LLC….Outlook, Changed To Positive From StableRATINGS RATIONALEThe upgrade of PFSI’s senior unsecured rating and Private National’s issuer rating to B1 from B2 reflects the companies’ reduced reliance on secured corporate funding in favor of unsecured funding. The planned issuance of $500 million of senior unsecured debt maturing in 2029 will increase the portion of unsecured debt to total corporate debt to more than 45% from approximately 32.5%, which will lower the companies’ reliance on secured mortgage servicing rights (MSR) funding facilities and Moody’s expects will materially lower the loss in the event of default on the companies’ senior unsecured obligations.The outlooks for Private National and PFSI were revised to positive from stable reflecting Moody’s expectation that these companies will be able to maintain their strong financial performance, minimize operational risk from past rapid growth, and maintain solid capital levels while continuing to strengthen their franchise positioning and improve their liquidity profiles over the next 12-18 months.PFSI’s Ba3 corporate family rating reflects the company’s solid track record of operational performance and a solidifying franchise position supporting its solid profitability, strong capital levels and a strengthening funding profile.The ratings also reflect PFSI’s solid and strengthening franchise in the United States mortgage market as the largest correspondent mortgage originator in 2020, and a top five overall US residential mortgage originator with a market share of approximately 5.0% for 2020. The company’s historical profitability is strong and has been exceptionally strong in this robust, low-rate production environment. Record origination volumes and elevated gain-on-sale margins have led the company to report very high levels of profitability, with return on average assets rising to approximately 7.7% for 2020 from approximately 4.5% for 2019. With interest rates likely to remain low well into 2021, Moody’s expects very high origination volumes, particularly refinance volumes, to continue to drive very strong profitability and solid gain-on-sale margins over the next 12-18 months.PFSI’s capitalization has been strong, with tangible common equity to tangible managed assets (TCE/TMA) averaging over 20% over the last several years. As of year-end 2020, the company’s tangible common equity to adjusted tangible managed assets (which excludes the Ginnie Mae loans eligible from repurchase from the capital ratio) was approximately 20.0%, a modest decline from approximately 22.5% as of year-end 2019. With strong projected future profitability, we expect the company’s capital ratio to remain around 20% over the next 12-18 months.PFSI’s funding structure has strengthened with its inaugural unsecured bond issuance in September 2020. Accessing the unsecured bond markets diversifies the company’s funding profile and reduces its reliance on secured mortgage servicing right (MSR) funding, thereby increasing its financial flexibility to tap secured MSR funding during periods of financial stress. In addition, the ratings reflect the risks, as well as benefits, associated with the company’s reliance on PennyMac Mortgage Investment Trust (Ba3 negative) as an important funding vehicle and revenue source for its loan production and loan servicing business.FACTORS THAT COULD LEAD TO AN UPGRADE OR DOWNGRADE OF THE RATINGSThe ratings could be upgraded if PFSI continues to demonstrate its strong financial performance, whereby Moody’s expects that long-term through the cycle profitability as measured by net income to average assets will average at least 4.0%. The company would however need to maintain solid capital levels such as if tangible common equity to adjusted tangible assets remains around 20.0%, as well as continue to strengthen its franchise positioning and maintain unsecured debt at around 50% of total corporate debt.Given the positive outlook, a ratings downgrade is unlikely over the next 12-18 months. Negative ratings pressure could occur if financial performance deteriorates – for example, if net income to managed assets falls consistently below and is expected to remain below 3.0% or if leverage increases such that PFSI’s tangible common equity to adjusted assets falls below, Moody’s expects it to remain below 17.5%.In addition, PFSI’s unsecured bond rating and Private National’s issuer rating could be downgraded from B1 to B2 in the event that the planned $500 million unsecured issuance does not close, or the portion of unsecured debt to total corporate debt falls and remains below 45%; under this scenario, Moody’s expects the loss on senior unsecured obligations in the event of default would be materially higher.The principal methodology used in these ratings was Finance Companies Methodology published in November 2019 and available at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1187099. Alternatively, please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.REGULATORY DISCLOSURESFor further specification of Moody’s key rating assumptions and sensitivity analysis, see the sections Methodology Assumptions and Sensitivity to Assumptions in the disclosure form. Moody’s Rating Symbols and Definitions can be found at: https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_79004.For ratings issued on a program, series, category/class of debt or security this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series, category/class of debt, security or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody’s rating practices. 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For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.The ratings have been disclosed to the rated entity or its designated agent(s) and issued with no amendment resulting from that disclosure.These ratings are solicited. Please refer to Moody’s Policy for Designating and Assigning Unsolicited Credit Ratings available on its website www.moodys.com.Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.Moody’s general principles for assessing environmental, social and governance (ESG) risks in our credit analysis can be found at https://www.moodys.com/researchdocumentcontentpage.aspx?docid=PBC_1243406.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the EU and is endorsed by Moody’s Deutschland GmbH, An der Welle 5, Frankfurt am Main 60322, Germany, in accordance with Art.4 paragraph 3 of the Regulation (EC) No 1060/2009 on Credit Rating Agencies. Further information on the EU endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.The Global Scale Credit Rating on this Credit Rating Announcement was issued by one of Moody’s affiliates outside the UK and is endorsed by Moody’s Investors Service Limited, One Canada Square, Canary Wharf, London E14 5FA under the law applicable to credit rating agencies in the UK. Further information on the UK endorsement status and on the Moody’s office that issued the credit rating is available on www.moodys.com.Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody’s legal entity that has issued the rating.Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating. Gene Berman Asst Vice President – Analyst Financial Institutions Group Moody’s Investors Service, Inc. 250 Greenwich Street New York, NY 10007 U.S.A. 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