Prospectus
Table of Contents

Filed Pursuant to Rule 424(b)(3)
Registration No. 333-173254

PROSPECTUS

LOGO

Realogy Corporation

Offers to Exchange

$491,824,000 aggregate principal amount of 11.50% Senior Notes due 2017, which have been registered under the Securities Act of 1933, for $491,824,000 aggregate principal amount of outstanding 11.50% Senior Notes due 2017.

$129,579,298 aggregate principal amount of 12.00% Senior Notes due 2017, which have been registered under the Securities Act of 1933, for $129,579,298 aggregate principal amount of outstanding 12.00% Senior Notes due 2017.

$10,282,000 aggregate principal amount of 13.375% Senior Subordinated Notes due 2018, which have been registered under the Securities Act of 1933, for $10,282,000 aggregate principal amount of outstanding 13.375% Senior Subordinated Notes due 2018.

 

 

The Exchange Offers:

 

   

Realogy will exchange all Old Notes (as defined below) that are validly tendered and not validly withdrawn for an equal principal amount of New Notes (as defined below) that have been registered under the Securities Act of 1933, as amended (the “Securities Act”).

 

   

You may withdraw tenders of Old Notes at any time prior to the expiration of these Exchange Offers (the “Exchange Offers”).

 

   

The Exchange Offers expire at 5:00 p.m., New York City time, on June 20, 2011, unless Realogy extends the Exchange Offers.

The New Notes:

 

   

The terms of the New Notes to be issued in the Exchange Offers are substantially identical to the Old Notes, except that the New Notes will be freely transferable by persons who are not affiliated with us and Realogy will not be obligated to pay additional interest as described in the Registration Rights Agreements.

 

   

No public market currently exists for the Old Notes. Realogy does not intend to list the New Notes on any securities exchange and, therefore, no active public market is anticipated.

 

   

The New Notes, like the Old Notes, will be guaranteed on an unsecured senior basis, in the case of the New Senior Notes (as defined below), and on an unsecured senior subordinated basis, in the case of the New 13.375% Senior Subordinated Notes (as defined below), by each of Realogy’s existing and future U.S. direct or indirect restricted subsidiaries that is a guarantor under Realogy’s senior secured credit facility (the “senior secured credit facility”) or that guarantees certain other indebtedness in the future, subject to certain exceptions. Domus Holdings Corp., a Delaware corporation and Realogy’s indirect parent (“Holdings”), will also guarantee the New Senior Notes, like the Old Senior Notes (as defined below), on an unsecured senior subordinated basis and the New 13.375% Senior Subordinated Notes, like the Old 13.375% Senior Subordinated Notes (as defined below), on an unsecured junior subordinated basis.

 

   

Like the Old Notes, if Realogy fails to make payments on the New Notes, the guarantors must make them instead.

 

   

Each broker-dealer that receives New Notes pursuant to these Exchange Offers must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes.

 

   

If the broker-dealer acquired the Old Notes as a result of market-making or other trading activities, such broker-dealer may use this prospectus for the Exchange Offers, as supplemented or amended, in connection with its resales of the New Notes.

 

 

You should carefully consider the risk factors beginning on page 26 of this prospectus before participating in the Exchange Offers.

 

 

Neither the Securities and Exchange Commission (the “SEC”) nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is May 20, 2011.


Table of Contents

TABLE OF CONTENTS

 

 

 

WHERE YOU CAN FIND MORE INFORMATION

     ii   

TRADEMARKS AND SERVICE MARKS

     ii   

MARKET AND INDUSTRY DATA AND FORECASTS

     ii   

PROSPECTUS SUMMARY

     1   

RISK FACTORS

     26   

FORWARD-LOOKING STATEMENTS

     53   

THE EXCHANGE OFFERS

     56   

USE OF PROCEEDS

     65   

CAPITALIZATION

     66   

SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

     67   

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

     70   

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

     120   

MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING

     121   

BUSINESS

     122   

MANAGEMENT

     143   

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

     168   

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     172   

DESCRIPTION OF OTHER INDEBTEDNESS

     182   

DESCRIPTION OF NOTES

     194   

BOOK-ENTRY SETTLEMENT AND CLEARANCE

     267   

REGISTRATION RIGHTS; ADDITIONAL INTEREST

     269   

CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS

     272   

CERTAIN ERISA CONSIDERATIONS

     273   

PLAN OF DISTRIBUTION

     275   

LEGAL MATTERS

     276   

EXPERTS

     276   

INDEX TO FINANCIAL STATEMENTS

     F-1   

You should rely only on the information contained in this prospectus. We have not authorized anyone to give you any information or to make any representations about us or the transactions we discuss in this prospectus other than those contained in this prospectus. If you are given any information or representations about these matters that is not discussed in this prospectus, you must not rely on that information. This prospectus is not an offer to sell or a solicitation of an offer to buy securities anywhere or to anyone where or to whom we are not permitted to offer or sell securities under applicable law. The delivery of this prospectus does not, under any circumstances, mean that there has not been a change in our affairs since the date of this prospectus. Subject to our obligation to amend or supplement this prospectus as required by law and the rules of the SEC, the information contained in this prospectus is correct only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities.

Until August 18, 2011 (90 days after the date of this prospectus), all dealers effecting transactions in the New Notes, whether or not participating in the Exchange Offers, may be required to deliver a prospectus.

 

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WHERE YOU CAN FIND MORE INFORMATION

Realogy files annual, quarterly and current reports and other information with the SEC. You may read and copy these documents at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference room. In addition, Realogy’s filings with the SEC are also available to the public on the SEC’s internet website at http://www.sec.gov.

You may request a copy of certain of the information referred to in this prospectus, at no cost, by contacting us at the following address: Realogy Corporation, One Campus Drive, Parsippany, New Jersey 07054 and our general telephone number is (973) 407-2000. Certain of such information is also available on our internet website at http://www.realogy.com. The contents of our internet website are not incorporated by reference herein or otherwise a part of this prospectus.

Realogy has filed a registration statement on Form S-4 (the “Registration Statement”) to register with the SEC the New Notes and guarantees thereof to be issued in exchange for the Old Notes and guarantees thereof. This prospectus is part of the Registration Statement. As allowed by the SEC’s rules, this prospectus does not contain all of the information you can find in the Registration Statement or the exhibits to the Registration Statement. You should note that where we summarize the material terms of any contract, agreement or other document filed as an exhibit to the Registration Statement in this prospectus, the summary information provided in this prospectus is less complete than the actual contract, agreement or document. You should refer to the exhibits filed with the Registration Statement, of which this prospectus forms a part, for copies of the actual contract, agreement or document.

TRADEMARKS AND SERVICE MARKS

We own or have rights to use the trademarks, service marks and trade names that we use in conjunction with the operation of our business. Some of the more important trademarks that we own or have rights to use that appear in this prospectus include the CENTURY 21®, COLDWELL BANKER®, ERA®, THE CORCORAN GROUP®, COLDWELL BANKER COMMERCIAL®, SOTHEBY’S INTERNATIONAL REALTY® and BETTER HOMES AND GARDENS® marks, which are registered in the United States and/or registered or pending registration in other jurisdictions, as appropriate to the needs of our relevant business. Each trademark, trade name or service mark of any other company appearing in this prospectus is owned by such company.

MARKET AND INDUSTRY DATA AND FORECASTS

This prospectus includes data, forecasts and information obtained from independent trade associations, industry publications and surveys and other information available to us. Some data is also based on our good faith estimates, which are derived from management’s knowledge of the industry and independent sources. As noted in this prospectus, the National Association of Realtors (“NAR”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal Home Loan Mortgage Corporation (“Freddie Mac”) were the primary sources for third-party industry data and forecasts. While data provided by NAR and Fannie Mae are two indicators of the direction of the residential housing market, we believe that homesale statistics will continue to vary between us and NAR and Fannie Mae because they use survey data in their historical reports and forecasting models whereas we use data based on actual reported results. In addition to the differences in calculation methodologies, there are geographical differences and concentrations in the markets in which we operate versus the national market. For instance, comparability is impaired due to NAR’s utilization of seasonally adjusted annualized rates whereas we report actual period over period changes and their use of median price for their forecasts compared to our average price. Historical NAR data is subject to periodic review and revision. NAR has recently issued a press release disclosing that it is engaged in a review of its sampling and methodology processes with respect to existing

 

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homesale data to ensure accuracy. NAR expects to conclude this analysis and publish any revisions in the summer of 2011. Any such changes could result in downward revisions of NAR’s historical national survey data but would have no impact on Realogy’s reported financial results or key business driver information.

Forecasts regarding rates of home ownership, median sales price, volume of homesales, and other metrics included in this prospectus to describe the housing industry are inherently uncertain or speculative in nature and actual results for any period may materially differ. Industry publications and surveys and forecasts generally state that the information contained therein has been obtained from sources believed to be reliable, but such information may not be accurate or complete. We have not independently verified any of the data from third-party sources nor have we ascertained the underlying economic assumptions relied upon therein. Statements as to our market position are based on market data currently available to us. While we believe that the industry data presented herein are derived from the most widely recognized sources for reporting U.S. residential housing market statistical data, we do not endorse or suggest reliance on this data alone.

We believe our internal research is reliable, even though such research has not been verified by any independent sources.

 

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PROSPECTUS SUMMARY

The following is a summary of the more detailed information appearing elsewhere in this prospectus. It does not contain all of the information that may be important to you. You should read this prospectus in its entirety, including the “Risk Factors” section, and the documents we have referred you to, before participating in the Exchange Offers.

Except as otherwise indicated or unless the context otherwise requires, the terms “we,” “us,” “our,” “our company,” the “Company” and “Holdings” refer to Domus Holdings Corp. and its consolidated subsidiaries, including Domus Intermediate Holdings Corp., a Delaware limited liability company (“Intermediate”) and Realogy Corporation, a Delaware corporation (“Realogy”). Holdings is not a party to the senior secured credit facility and certain references in this prospectus to our consolidated indebtedness exclude Holdings with respect to indebtedness under the senior secured credit facility. In addition, while Holdings is a guarantor of Realogy’s obligations under the Unsecured Notes (as defined below) and the First and a Half Lien Notes (as defined below), Holdings is not subject to the restrictive covenants in the agreements governing such indebtedness. Holdings, the indirect parent of Realogy, does not conduct any operations other than with respect to its indirect ownership of Realogy. Intermediate, the parent of Realogy, does not conduct any operations other than with respect to its ownership of Realogy.

On January 5, 2011, Realogy consummated private debt exchange offers for its outstanding 10.50% Senior Notes due 2014 (the “10.50% Senior Notes”), 11.00%/11.75% Senior Toggle Notes due 2014 (the “Senior Toggle Notes”) and 12.375% Senior Subordinated Notes due 2015 (the “12.375% Senior Subordinated Notes” and, together with the 10.50% Senior Notes and the Senior Toggle Notes, the “Existing Notes”) (collectively, the “Debt Exchange Offering”) pursuant to which Realogy issued the Old Notes. In this prospectus, the term “Old Notes” refers to the outstanding 11.50% Senior Notes due 2017 (the “Old 11.50% Senior Notes”), the outstanding 12.00% Senior Notes due 2017 (the “Old 12.00% Senior Notes” and, together with the Old 11.50% Senior Notes, the “Old Senior Notes”) and the outstanding 13.375% Senior Subordinated Notes due 2018 (the “Old 13.375% Senior Subordinated Notes”) all as issued in the Debt Exchange Offering in exchange for the Existing Notes. As used in this prospectus, the term “New Notes” refers to the 11.50% Senior Notes due 2017 (the “New 11.50% Senior Notes”), the 12.00% Senior Notes due 2017 (the “New 12.00% Senior Notes” and, together with the New 11.50% Senior Notes, the “New Senior Notes”) and the 13.375% Senior Subordinated Notes due 2018 (the “New 13.375% Senior Subordinated Notes”), all as are being registered under the Securities Act. The term “Notes” refers to both the Old Notes and the New Notes. References to the New 11.50% Senior Notes, the New 12.00% Senior Notes and the New 13.375% Senior Subordinated Notes include the related series of Old Notes, unless otherwise indicated. The term “Unsecured Notes” refers to the Existing Notes, the 11.00% Series A Convertible Notes due 2018 (the “Series A Convertible Notes”), the 11.00% Series B Convertible Notes due 2018 (the “Series B Convertible Notes”), the 11.00% Series C Convertible Notes due 2018 (the “Series C Convertible Notes” and, together with the Series A Convertible Notes and the Series B Convertible Notes, the “Convertible Notes”), the Old Notes and the New Notes.

Our Company

We are one of the preeminent and most integrated providers of real estate and relocation services. We are the world’s largest real estate brokerage franchisor, the largest U.S. residential real estate brokerage firm, the largest U.S. provider and a leading global provider of outsourced employee relocation services and a provider of title and settlement services. Through our portfolio of leading brands and the broad range of services we offer, we have established our company as a leader in the residential real estate industry, with operations that are dispersed throughout the U.S. and in various locations worldwide. We derive the vast majority of our revenues from serving the needs of buyers and sellers of existing homes, rather than serving the needs of builders and developers of new homes. Realogy was incorporated on January 27, 2006 in the State of Delaware.

 

 

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We report our operations in four segments: Real Estate Franchise Services, Company Owned Real Estate Brokerage Services, Relocation Services and Title and Settlement Services.

Segment Overview

Real Estate Franchise Services: Through our Real Estate Franchise Services segment, or RFG, we are a franchisor of some of the most recognized brands in the real estate industry. As of March 31, 2011, our franchise system had approximately 14,600 offices (which included approximately 740 of our company owned and operated brokerage offices) and 260,400 independent sales associates operating under our franchise and proprietary brands in the U.S. and 99 other countries and territories around the world (internationally, generally through master franchise agreements). In 2010, based on NAR’s historical survey data and our own results, we were involved, either through our franchise operations of our franchisees or our company owned brokerages, in approximately 23% of all existing homesale transaction volume (sides times average sales price) for domestic transactions involving a real estate brokerage firm. As of December 31, 2010, we had approximately 3,600 domestic franchisees, none of which individually represented more than 1% of our franchise royalties (other than our subsidiary, NRT LLC, or NRT, which operates our company owned brokerage business). We believe this reduces our exposure to any one franchisee. On average, our franchisee’s tenure with our brands is 18 years as of December 31, 2010. Our franchise revenues included $42 million and $206 million of royalties paid by our company owned brokerage operations, or approximately 36% and 37% of total franchise revenues, for the three months ended March 31, 2011 and the year ended December 31, 2010, respectively, which eliminates in consolidation. As of March 31, 2011, our real estate franchise brands were:

 

   

Century 21®—One of the world’s largest residential real estate brokerage franchisors, with approximately 7,900 franchise offices and approximately 119,200 independent sales associates located in the U.S. and 70 other countries and territories;

 

   

Coldwell Banker®—One of the largest residential real estate brokerage franchisors, with approximately 3,200 franchise and company owned offices and approximately 87,200 independent sales associates located in the U.S. and 48 other countries and territories;

 

   

ERA®—A residential real estate brokerage franchisor, with approximately 2,500 franchise and company owned offices and approximately 30,700 independent sales associates located in the U.S. and 41 other countries and territories;

 

   

Sotheby’s International Realty®—A luxury real estate brokerage brand. In February 2004, we acquired Sotheby’s company owned offices and the exclusive license for the rights to the Sotheby’s Realty and Sotheby’s International Realty® trademarks. Since that time, we have grown the brand from 15 company owned offices to approximately 560 franchise and company owned offices and approximately 12,000 independent sales associates located in the U.S. and 41 other countries and territories;

 

   

Better Homes and Gardens® Real Estate—We launched the Better Homes and Gardens® Real Estate brand in July 2008 under an exclusive long-term license from Meredith Corporation (“Meredith”) and have approximately 200 franchise offices and approximately 7,000 independent sales associates located in the U.S.; and

 

   

Coldwell Banker Commercial®—A commercial real estate brokerage franchisor. Our commercial franchise system has approximately 160 franchise offices and approximately 2,000 independent sales associates worldwide. The number of offices and independent sales associates in our commercial franchise system does not include our residential franchise and company owned brokerage offices and the independent sales associates who work out of those brokerage offices that also conduct commercial real estate brokerage business using the Coldwell Banker Commercial® trademarks.

 

 

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We derive substantially all of our real estate franchising revenues from royalty fees received under long-term franchise agreements with our franchisees (typically ten years in duration for domestic agreements). The royalty fee is based on a percentage of the franchisees’ sales commission earned from real estate transactions, which we refer to as gross commission income. Our franchisees pay us royalty fees for the right to operate under one of our trademarks and to utilize the benefits of the systems and tools provided by our real estate franchise operations. These royalty fees enable us to have recurring revenue streams. In exchange, we provide our franchisees with support that is designed to facilitate our franchisees in growing their business, attracting new independent sales associates and increasing their revenue and profitability. We support our franchisees with dedicated branding-related national marketing and servicing programs, technology, training and education. We believe that one of our strengths is the strong relationships that we have with our franchisees, as evidenced by our franchisee retention rate of 95% in 2010. Our retention rate represents the annual gross commission income as of December 31 of the previous year generated by our franchisees that remain in the franchise system on an annual basis, measured against the annual gross commission income of all franchisees as of December 31 of the previous year.

Company Owned Real Estate Brokerage Services: Through our subsidiary, NRT, we own and operate a full-service real estate brokerage business in more than 35 of the largest metropolitan areas of the U.S. Our company owned real estate brokerage business operates principally under our Coldwell Banker® brand as well as under the ERA® and Sotheby’s International Realty® franchised brands, and proprietary brands that we own, but do not currently franchise to third parties, such as The Corcoran Group®. In addition, under NRT, we operate a large independent REO residential asset manager, which focuses on bank-owned properties. At March 31, 2011, we had approximately 740 company owned brokerage offices, approximately 5,000 employees and approximately 43,000 independent sales associates working with these company owned offices. Acquisitions have been, and will continue to be, part of our strategy and a contributor to the growth of our company owned brokerage business.

Our company owned real estate brokerage business derives revenues primarily from gross commission income received serving as the broker at the closing of real estate transactions. For the year ended December 31, 2010, our average homesale broker commission rate was 2.48% which represents the average commission rate earned on either the “buy” side or the “sell” side of a homesale transaction. Generally in U.S. homesale transactions, the broker for the home seller instructs the closing agent to pay a portion of the sales commission to the broker for the buyer and keeps the remaining portion of the homesale commission. In addition, as a full-service real estate brokerage company, in compliance with applicable laws and regulations, including the Real Estate Settlement Procedures Act (“RESPA”), we actively promote the services of our relocation and title and settlement services businesses, as well as the products offered by PHH Home Loans, LLC (“PHH Home Loans”), our home mortgage venture with PHH Corporation (“PHH”) that is the exclusive recommended provider of mortgages for our real estate brokerage and relocation service customers. All mortgage loans originated by PHH Home Loans are sold to PHH or other third party investors, and PHH Home Loans does not hold any mortgage loans for investment purposes or perform servicing functions for any loans it originates. Accordingly, our home mortgage venture structure insulates us from mortgage servicing risk. We own 49.9% of PHH Home Loans and PHH owns the remaining 50.1%. The Company is not the primary beneficiary and therefore our financial results only reflect our proportionate share of the venture’s results of operations which are recorded using the equity method.

Relocation Services: Through our subsidiary, Cartus Corporation (“Cartus”), we are a leading global provider of outsourced employee relocation services and the largest provider in the U.S. We offer a broad range of world-class employee relocation services designed to manage all aspects of an employee’s move to facilitate a smooth transition in what otherwise may be a difficult process for both the employee and the employer.

Our relocation services business primarily offers its clients employee relocation services such as homesale assistance, home finding and other destination services, expense processing, relocation policy counseling and

 

 

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other consulting services, arranging household moving services, visa and immigration support, intercultural and language training and group move management services. In addition to general residential housing trends, key drivers of our relocation services business are corporate spending and employment trends.

In January 2010, our relocation business acquired Primacy, a relocation and global assignment management services company headquartered in Memphis, Tennessee with international locations in Canada, Europe and Asia. The acquisition enabled Cartus to re-enter the U.S. government relocation business, increase its domestic operations, as well as expand the Company’s global relocation capabilities. Effective January 1, 2011, the Primacy business operates under the Cartus name.

In 2010, we assisted in over 148,000 relocations in over 160 countries for approximately 1,500 active clients, including over 60% of the Fortune 50 companies as well as affinity organizations. Cartus has offices in the U.S. as well as internationally in Swindon and Richmond, United Kingdom, Canada, Hong Kong, Singapore, China, Germany, France, Switzerland and The Netherlands.

Clients pay a fee for the services performed and we also receive commissions from third-party service providers, such as real estate brokers and household goods moving service providers. The majority of our clients pay interest on home equity advances and nearly all clients reimburse all other costs associated with our services, including, where required, repayment of home equity advances and reimbursement of losses on the sale of homes purchased. We believe we provide our relocation clients with exceptional service which leads to client retention. As of December 31, 2010, our top 25 relocation clients had an average tenure of 18 years with us. In addition, our relocation services business generates revenue for our other businesses because the clients of our relocation services business often utilize the services of our franchisees and company owned brokerage offices as well as our title and settlement services.

Title and Settlement Services: In most real estate transactions, a buyer will choose, or will be required, to purchase title insurance that will protect the purchaser and/or the mortgage lender against loss or damage in the event that title is not transferred properly and to insure free and clear ownership of the property to the buyer. Our title and settlement services business, which we refer to as TRG, assists with the closing of a real estate transaction by providing full-service title and settlement (i.e., closing and escrow) services to customers, real estate companies, including our company owned real estate brokerage and relocation services businesses as well as a targeted channel of large financial institution clients including PHH. In addition to our own title settlement services, we also coordinate a nationwide network of attorneys, title agents and notaries to service financial institution clients on a national basis.

Our title and settlement services business earns revenues through fees charged in real estate transactions for rendering title and other settlement and non-settlement related services. We provide many of these services in connection with transactions in which our company owned real estate brokerage and relocation services businesses are participating. During 2010, approximately 39% of the customers of our company owned brokerage offices where we offer title coverage also utilized our title and settlement services. Fees for escrow and closing services are generally separate and distinct from premiums paid for title insurance and other real estate services. We also derive revenues by providing our title and settlement services to various financial institutions in the mortgage lending industry. Such revenues are primarily derived from providing our services to their customers who are refinancing their mortgage loans.

We also serve as an underwriter of title insurance policies in connection with residential and commercial real estate transactions. Our title insurance underwriter is licensed in 25 states and Washington, D.C. Our title underwriting operation generally earns revenues through the collection of premiums on policies that it issues.

 

 

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The Refinancing Transactions

Debt Exchange Offering

On January 5, 2011, Realogy completed the Debt Exchange Offering. Approximately $2,110 million aggregate principal amount of Existing Notes were tendered for Convertible Notes, which are convertible at the holder’s option into Class A Common Stock of Holdings, par value $0.01 per share (“Class A Common Stock”), and approximately $632 million aggregate principal amount of Existing Notes were tendered for Old Notes. On January 5, 2011, Realogy issued:

 

   

$492 million aggregate principal amount of Old 11.50% Senior Notes and $1,144 million aggregate principal amount of Series A Convertible Notes in exchange for $1,636 million aggregate principal amount of outstanding 10.50% Senior Notes;

 

   

$130 million aggregate principal amount of Old 12.00% Senior Notes and $291 million aggregate principal amount of Series B Convertible Notes in exchange for $421 million aggregate principal amount of outstanding Senior Toggle Notes; and

 

   

$10 million aggregate principal amount of Old 13.375% Senior Subordinated Notes and $675 million aggregate principal amount of Series C Convertible Notes in exchange for $685 million aggregate principal amount of outstanding 12.375% Senior Subordinated Notes.

In addition, upon receipt of the requisite consents from the holders of the 10.50% Senior Notes and Senior Toggle Notes, Realogy amended the respective indentures governing the terms of such notes to remove substantially all of the restrictive covenants and certain other provisions previously contained in those indentures.

As a result of the Debt Exchange Offering, Realogy extended the maturity of approximately $2,742 million aggregate principal amount of the Unsecured Notes to 2017 and 2018, leaving approximately $303 million aggregate principal amount of Existing Notes that mature in 2014 and 2015. In addition, pursuant to the terms of the indenture governing the Convertible Notes, the Convertible Notes are redeemable at Realogy’s option at a price equal to 90% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption upon a Qualified Public Offering (as defined below).

Realogy and Holdings have filed a shelf registration statement with the SEC with respect to resales of the outstanding Convertible Notes and the Class A Common Stock issuable upon conversion of the Convertible Notes.

Amendment to Senior Secured Credit Facility

Effective February 3, 2011, Realogy entered into the first amendment to the senior secured credit facility (the “Senior Secured Credit Facility Amendment”) and an incremental assumption agreement, which resulted in the following:

 

   

certain lenders extended the maturity of a significant portion of first lien term loans, revolving commitments and synthetic letter of credit commitments to October 10, 2016, April 10, 2016, and October 10, 2016, respectively, which extensions resulted in approximately $2,424 million aggregate principal amount of extended term loans, approximately $461 million aggregate principal amount of commitments in respect of extended revolving loans and approximately $171 million aggregate principal amount of extended synthetic letter of credit commitments;

 

   

certain lenders simultaneously converted approximately $98 million aggregate principal amount of revolving commitments in respect of extended revolving loans to extended term loans, thereby reducing the commitments under the revolving credit facility to $652 million;

 

 

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the net proceeds of the $700 million aggregate principal amount of First and a Half Lien Notes (as defined below), together with cash on hand, were used to prepay $700 million of the outstanding extended term loans, thereby reducing the aggregate principal amount of extended term loans to $1,822 million;

 

   

the interest rate with respect to the extended term loans was increased by 1.25% from the rate applicable to the non-extended term loans;

 

   

the interest rate with respect to the extended revolving loans was increased by 1.0% from the rate applicable to the non-extended revolving loans; and

 

   

the fee with respect to the synthetic letter of credit facility was increased by 1.25% from the fee applicable to the non-extended synthetic letter of credit facility.

The Senior Secured Credit Facility Amendment also provides for the following:

 

   

allows for one or more future issuances of additional senior secured notes or unsecured notes or loans to prepay Realogy’s first lien term loans, to be secured on either a pari passu basis with, or junior to, its first lien obligations under the senior secured credit facility;

 

   

allows for one or more future issuances of additional senior secured or unsecured notes or loans to prepay Realogy’s second lien loans, to be secured on a pari passu basis with, or junior to, its second lien loans under the senior secured credit facility;

 

   

allows for the incurrence of additional incremental term loans that are secured on a junior basis to the second lien loans in an aggregate amount not to exceed $350 million; and

 

   

provides that debt financing secured by a lien that is junior in priority to the first lien obligations under the senior secured credit facility (including, but not limited to, the First and a Half Lien Notes) will not, subject to certain exceptions, constitute senior secured debt for purposes of calculating the senior secured leverage ratio under the senior secured credit facility.

The extended term loans do not require any scheduled amortization of principal. The non-extended term loan facility will continue to provide for quarterly amortization payments totaling 1% per annum of the principal amount of the non-extended first lien term loans. Approximately $635 million aggregate principal amount of the term loans under the senior secured credit facility were not extended in connection with the Senior Secured Credit Facility Amendment.

Issuance of First and a Half Lien Notes

On February 3, 2011, Realogy issued $700 million aggregate principal amount of 7.875% Senior Secured Notes due 2019 (the “First and a Half Lien Notes”) in a private offering exempt from the registration requirements of the Securities Act. The First and a Half Lien Notes are secured by substantially the same collateral as Realogy’s existing secured obligations under the senior secured credit facility, but the priority of the collateral liens securing the First and a Half Lien Notes is (i) junior to the collateral liens securing Realogy’s first lien obligations under the senior secured credit facility and (ii) senior to the collateral liens securing Realogy’s second lien obligations under the senior secured credit facility.

As discussed above, the net proceeds from the offering of the First and a Half Lien Notes, along with cash on hand, were used to prepay $700 million of certain of Realogy’s first lien term loans that were extended in connection with the Senior Secured Credit Facility Amendment. See “Description of Other Indebtedness” for further discussion of the First and a Half Lien Notes and Realogy’s other outstanding indebtedness.

As used in this prospectus, the term “Refinancing Transactions” refers to, collectively, (1) the Debt Exchange Offering, (2) the Senior Secured Credit Facility Amendment, and (3) the issuance of First and a Half Lien Notes.

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Our headquarters are located at One Campus Drive, Parsippany, New Jersey 07054 and our general telephone number is (973) 407-2000. We maintain an internet website at http://www.realogy.com. Our internet website address is provided as an inactive textual reference. Our internet website and the information contained on that site, or connected to that site, are not incorporated by reference into this prospectus.

 

 

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OUR OWNERSHIP AND DEBT STRUCTURE

The following diagram sets forth our ownership and debt structure as of March 31, 2011. The diagram does not display all of our subsidiaries.

LOGO

 

 

(1) Consists of investment funds affiliated with Apollo (as defined below) and an investment fund of co-investors managed by Apollo that invested an aggregate of $1,978 million of equity in Holdings upon consummation of the Merger.
(2)

In connection with the Debt Exchange Offering, Apollo and Paulson & Co. Inc., on behalf of the several investment funds and accounts managed by it (together with such investment funds and accounts, “Paulson”), received Convertible Notes. On a fully diluted basis, assuming that all Convertible Notes issued in the Debt Exchange Offering are converted into Class A Common Stock, Apollo and Paulson would own approximately 66.2% and 21.5%, respectively, of the outstanding common stock of Holdings (the “Common Stock”)

 

 

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immediately following such conversion, and the remaining 12.2% of our outstanding Common Stock would be held by our directors, officers and employees (0.1%) and other holders of Convertible Notes.

(3) Certain members of our management also contributed rollover equity of $23 million to finance a portion of the Merger. As of March 31, 2011, management owned 2,606,905 shares of Common Stock, options to purchase 15,989,500 shares of Common Stock and 105,000 shares of restricted stock of Holdings. On January 5, 2011, the Board of Directors of Realogy approved the Realogy Corporation Phantom Value Plan and made initial grants of Incentive Awards of approximately $21.8 million to our CEO, the other named executive officers and the CEO’s other three direct reports. These grants are subject to the terms and conditions of the Phantom Value Plan which is intended to provide certain participants, including the Company’s named executive officers, with an incentive to remain in the service of the Company, to increase their interest in the success of the Company and to receive compensation based upon the Company’s success.
(4) As of March 31, 2011, the first priority obligations under the senior secured credit facility consisted of a $2,456 million term loan facility, $30 million of outstanding borrowings under a $652 million revolving credit facility, and $223 million of letters of credit outstanding under a $223 million synthetic letter of credit facility. As of March 31, 2011, borrowing availability under the revolving credit facility was approximately $517 million (after giving effect to $105 million of outstanding letters of credit). As of May 16, 2011 we had $325 million outstanding under the revolving credit facility.
(5) Realogy has $650 million of second lien term loans under the incremental loan feature of the senior secured credit facility (the “Second Lien Loans”).
(6) Guarantors include each wholly-owned subsidiary of Realogy other than subsidiaries that are (a) foreign subsidiaries, (b) securitization entities that are subsidiaries of Cartus Corporation, (c) insurance underwriters that are subsidiaries of Title Resource Group LLC and (d) qualified foreign corporation holding companies.
(7) Certain subsidiaries of Cartus Corporation are borrowers under the Securitization Facilities. These special purpose entities were created for financing relocation receivables and advances, relocation properties held for sale and other related assets and issuing notes secured by such receivables and other assets. At March 31, 2011, $311 million of securitization obligations were outstanding under our Securitization Facilities which were collateralized by $390 million of securitization assets that are not available to pay our general obligations.
(8) Other bank indebtedness consists of revolving credit facilities that are supported by letters of credit issued under the senior secured credit facility, of which $50 million is due in November 2011 and $50 million is due in January 2013.

Our Equity Sponsor

On December 15, 2006, Realogy entered into an agreement and plan of merger (the “Merger”) with affiliates of Apollo. The Merger was consummated on April 10, 2007. As a result of the Merger, Realogy became an indirect wholly-owned subsidiary of Holdings and our principal stockholders are investment funds affiliated with, or co-investment vehicles managed by, Apollo Management VI, L.P. or one of its affiliates (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”). Founded in 1990, Apollo is a leading global alternative asset manager with offices in New York, Los Angeles, London, Frankfurt, Luxembourg, Singapore, Hong Kong and Mumbai. As of March 31, 2011, Apollo had assets under management of $70 billion in its private equity, capital markets and real estate businesses. Companies owned or controlled by Apollo or its affiliates or in which Apollo or its affiliates have a significant equity investment include, among others, Affinion Group Holdings, Inc., AMC Entertainment, Inc., Berry Plastics Group, Inc., CEVA Group Plc, Metals USA Holdings Corp., Momentive Performance Materials LLC, NCL Corporation Ltd., Noranda Aluminum Holding Corporation, Rexnord Holdings, Inc. and Verso Paper Company.

 

 

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SUMMARY HISTORICAL CONSOLIDATED FINANCIAL DATA

The following table presents our summary historical consolidated financial data and operating statistics. The consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010 and 2009 have been derived from our audited consolidated financial statements included in this prospectus. The consolidated balance sheet data as of December 31, 2008 has been derived from our consolidated and combined financial statements not included in this prospectus. The unaudited condensed consolidated statement of operations data and balance sheet data for the three months ended March 31, 2011 and 2010 have been derived from our unaudited historical condensed consolidated financial statements included in this prospectus. Results for interim periods are not indicative of results to be expected for any interim period or for a full year.

Holdings, the indirect parent of Realogy, does not conduct any operations other than with respect to its indirect ownership of Realogy. Intermediate, the parent of Realogy, does not conduct any operations other than with respect to its ownership of Realogy. Any expenses related to stock compensation issued by Holdings to the employees or directors of Realogy or franchise taxes incurred by Holdings are recorded in Realogy’s financial statements. As a result, there are no material differences between Holdings’ and Realogy’s financial statements for the three months ended March 31, 2011 and 2010 and the years ended December 31, 2010, 2009 and 2008 and no material differences between Intermediate’s and Realogy’s financial statements for the three months ended March 31, 2011 and 2010 and the years ended December 31, 2010, 2009 and 2008.

The summary historical consolidated financial data should be read in conjunction with the sections of this prospectus entitled “Capitalization” and “Selected Historical Consolidated and Combined Financial Statements.”

 

     As of or For the Three Months Ended
March 31,
     As of or For the Year Ended
December 31,
 
     2011      2010          2010             2009             2008      

Statement of Operations Data:

            

Net revenue

   $ 831       $ 819       $ 4,090      $ 3,932      $ 4,725   

Total expenses

     1,067         1,011         4,084        4,266        6,988   
                                          

Income (loss) before income taxes, equity in earnings and noncontrolling interests

     (236      (192      6        (334     (2,263

Income tax expense (benefit)

     1         6         133        (50     (380

Equity in (earnings) losses of unconsolidated entities

     —           (1      (30     (24     28   
                                          

Net loss

     (237      (197      (97     (260     (1,911

Less: Net income attributable to noncontrolling interests

     —           —           (2     (2     (1
                                          

Net loss attributable to Realogy and Holdings

   $ (237    $ (197    $ (99   $ (262   $ (1,912
                                          

Other Data:

            

Interest expense, net (1)

     179         152         604        583        624   

Cash flows provided by (used in):

            

Operating activities

     (87      13         (118     341        109   

Investing activities

     (19      (3      (70     (47     (23

Financing activities

     6         (58      124        (479     199   

EBITDA (2)

     (11      11         835        465        (1,449

EBITDA before restructuring and other items (2)

     25         22         534        427        411   

Adjusted EBITDA for the twelve months ended—Senior secured credit facility covenant compliance (3)

     634            633        619        657   

Balance Sheet Data:

            

Cash and cash equivalents

   $ 93       $ 207       $ 192      $ 255      $ 437   

Securitization assets (4)

     390         306         393        364        845   

Total assets

     7,913         8,083         8,029        8,041        8,912   

Securitization obligations

     311         239         331        305        703   

Long-term debt, including short-term portion

     6,973         6,738         6,892        6,706        6,760   

Equity (deficit) (5)

     (1,297      (1,177      (1,072     (981     (740

 

(1) Based upon our debt balances at December 31, 2010, after giving effect to the Refinancing Transactions, we estimate that our annual cash interest will increase by approximately $55 million assuming LIBOR rates as of December 31, 2010.

 

 

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(2) EBITDA is defined by us as net income (loss) before depreciation and amortization, interest (income) expense, net (other than relocation services interest for securitization assets and securitization obligations) and income taxes. EBITDA before restructuring and other items is defined by us as EBITDA adjusted for merger costs, restructuring costs, former parent legacy cost (benefit) items, net, impairment of intangible assets, goodwill and investments in unconsolidated entities, non-cash charges for PHH Home Loans impairment and gain or loss on the early extinguishment of debt. We present EBITDA and EBITDA before restructuring and other items because we believe EBITDA and EBITDA before restructuring and other items are useful supplemental measures in evaluating the performance of our operating businesses and provide greater transparency into our results of operations. The EBITDA and EBITDA before restructuring and other items measures are used by our management, including our chief operating decision maker, to perform such evaluation. EBITDA and EBITDA before restructuring and other items should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.

We believe EBITDA facilitates company-to-company operating performance comparisons by backing out potential differences caused by variations in capital structures (affecting net interest expense), taxation, the age and book depreciation of facilities (affecting relative depreciation expense) and the amortization of intangibles, which may vary for different companies for reasons unrelated to operating performance. We believe EBITDA before restructuring and other items also facilitates company-to-company operating performance comparisons by backing out those items in EBITDA as well as certain historical cost (benefit) items which may vary for different companies for reasons unrelated to operating performance. We further believe that EBITDA is frequently used by securities analysts, investors and other interested parties in their evaluation of companies, many of which present an EBITDA measure when reporting their results.

EBITDA and EBITDA before restructuring and other items have limitations as analytical tools, and you should not consider EBITDA and EBITDA before restructuring and other items either in isolation or as substitutes for analyzing our results as reported under GAAP. The limitations include the following:

 

   

these measures do not reflect changes in, or cash requirement for, our working capital needs;

 

   

these measures do not reflect our interest expense (except for interest related to our securitization obligations), or the cash requirements necessary to service interest or principal payments on our debt;

 

   

these measures do not reflect our income tax expense or the cash requirements to pay our taxes;

 

   

these measures do not reflect historical cash expenditures or future requirements for capital expenditures or contractual commitments;

 

   

although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often require replacement in the future, and these EBITDA measures do not reflect any cash requirements for such replacements; and

 

   

other companies in our industry may calculate these EBITDA measures differently so they may not be comparable.

EBITDA and EBITDA before restructuring and other items are not necessarily comparable to other similarly titled financial measures of other companies due to the potential inconsistencies in the method of calculation.

 

(3) Adjusted EBITDA—Senior Secured Credit Facility Covenant Compliance corresponds to the definition of “EBITDA,” calculated on a “pro forma basis,” used in the senior secured credit facility to calculate the senior secured leverage ratio. Adjusted EBITDA is calculated by adjusting EBITDA by the items described below. Adjusted EBITDA is presented to demonstrate Realogy’s compliance with the senior secured leverage ratio covenant in the senior secured credit facility. Adjusted EBITDA has limitations as an analytical tool and should not be considered in isolation or as a substitute for net income or other statement of operations data prepared in accordance with GAAP.

In addition to the limitations described above with respect to EBITDA and EBITDA before restructuring and other items, Adjusted EBITDA includes pro forma cost savings, the pro forma effect of business optimization initiatives and the pro forma full year effect of acquisitions and new franchisees. These adjustments may not reflect the actual cost savings or pro forma effect recognized in future periods. We present Adjusted EBITDA for the trailing twelve month period.

 

 

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A reconciliation of net loss attributable to Realogy to EBITDA, EBITDA before restructuring and other items and Adjusted EBITDA for the twelve months ended March 31, 2011 and the years ended December 31, 2010, 2009 and 2008 as calculated in accordance with the senior secured credit facility and presented in certificates delivered to the lenders under the senior secured credit facility is set forth in the following table:

 

     For the Twelve Months Ended  
     March 31,
2011
    December 31,
2010
    December 31,
2009
    December 31,
2008
 

Net loss attributable to Realogy

   $ (139   $ (99   $ (262   $ (1,912

Income tax expense (benefit)

     128        133        (50     (380
                                

Income (loss) before income taxes

     (11     34        (312     (2,292

Interest expense (income), net

     631        604        583        624   

Depreciation and amortization

     193        197        194        219   
                                

EBITDA

     813        835        465        (1,449

Merger costs, restructuring costs and former parent legacy costs (benefit), net

     (312 )(a)      (301 )(b)      37        40   

Impairment of intangible assets, goodwill and investments in unconsolidated entities

     —          —          —          1,789 (c) 

Non-cash charges for PHH Home Loans impairment

     —          —          —          31   

Loss (gain) on the early extinguishment of debt

     36        —          (75     —     
                                

EBITDA before restructuring and other items

     537        534        427        411   

Pro forma cost savings

     17 (d)      20 (e)      33 (f)      65 (g) 

Pro forma effect of business optimization initiatives

     48 (h)      49 (i)      38 (j)      61 (k) 

Non-cash charges

     (2 )(l)      (4 )(m)      34 (n)      60 (o) 

Non-recurring fair value adjustments for purchase accounting (p)

     4        4        5        6   

Pro forma effect of acquisitions and new franchisees (q)

     13        13        5        14   

Apollo management fees (r)

     15        15        15        14   
Proceeds from WEX contingent asset (s)      —          —          55        12   

Incremental securitization interest costs (t)

     2        2        3        6   

Expenses incurred in debt modification activities (u)

     —          —          4        5   

Better Homes and Gardens Real Estate start up costs

     —            —          3   
                                

Adjusted EBITDA—Senior secured credit facility covenant compliance

   $ 634      $ 633      $ 619      $ 657   
                                

Total senior secured net debt (v)

   $ 2,427      $ 2,905      $ 2,886      $ 3,250   
                                

Senior secured leverage ratio

     3.83x        4.59x        4.66x        4.95x   
                                

 

  (a) Consists of $18 million of restructuring costs and $1 million of merger costs offset by a net benefit of $331 million for former parent legacy items.
  (b) Consists of $21 million of restructuring costs and $1 million of merger costs offset by a benefit of $323 million of former parent legacy items.
  (c) Represents the non-cash adjustment for the impairment of goodwill, intangible assets and investments in unconsolidated entities.
  (d) Represents actual costs incurred that are not expected to recur in subsequent periods due to restructuring activities initiated during the twelve months ended March 31, 2011. From this restructuring, we expect to reduce our operating costs by approximately $17 million on a twelve-month run-rate basis and estimate that less than $1 million of such savings were realized from the time they were put in place. The adjustment shown represents the impact the savings would have had on the period from April 1, 2010 through the time they were put in place had those actions been effected on April 1, 2010.
  (e)

Represents actual costs incurred that are not expected to recur in subsequent periods due to restructuring activities initiated during 2010. From this restructuring, we expect to reduce our operating costs by approximately $34 million on a twelve-month run-rate basis and estimate that $14 million of such savings were realized from the time they were put in place. The adjustment shown represents the

 

 

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impact the savings would have had on the period from January 1, 2010 through the time they were put in place, had those actions been effected on January 1, 2010.

  (f) Represents actual costs incurred that were not expected to recur in subsequent periods due to restructuring activities initiated during 2009. From this restructuring, we expected to reduce our operating costs by approximately $103 million on a twelve-month run-rate basis and estimated that $70 million of such savings were realized from the time they were put in place. The adjustment shown represents the impact the savings would have had on the period from January 1, 2009 through the time they were put in place, had those actions been effected on January 1, 2009.
  (g) Represents actual costs incurred that were not expected to recur in subsequent periods due to restructuring activities initiated during 2008. From this restructuring, we expected to reduce our operating costs by approximately $96 million on a twelve month run-rate basis and estimated that $31 million of such savings were realized from the time they were put in place. The adjustment shown represents the impact the savings would have had on the period from January 1, 2008 through the time they were put in place, had those actions been effected on January 1, 2008.
  (h) Represents the twelve-month pro forma effect of business optimization initiatives that have been completed to reduce costs of $9 million related to our Relocation Services new business start-ups, integration costs and acquisition related non-cash adjustments, $5 million related to vendor renegotiations, $26 million for employee retention accruals and $8 million of other initiatives. The employee retention accruals reflect the employee retention plans that have been implemented in lieu of our customary bonus plan, due to the ongoing and prolonged downturn in the housing market in order to ensure the retention of executive officers and other key personnel, principally within our corporate services unit and the corporate offices of our four business units.
  (i) Represents the twelve-month pro forma effect of business optimization initiatives that have been completed to reduce costs, including $12 million related to our Relocation Services new business start-ups, integration costs and acquisition related non-cash adjustments, $6 million related to vendor renegotiations, $23 million for employee retention accruals and $8 million of other initiatives. The employee retention accruals reflect the employee retention plans that have been implemented in lieu of our customary bonus plan, due to the ongoing and prolonged downturn in the housing market in order to ensure the retention of executive officers and other key personnel, principally within our corporate services unit and the corporate offices of our four business units.
  (j) Represents the twelve-month pro forma effect of business optimization initiatives that have been completed to reduce costs, including $3 million for initiatives to improve the Company Owned Real Estate Brokerage profit margin, $2 million for initiatives to improve Relocation Services and Title and Settlement Services fees, $19 million for employee retention accruals, and $14 million related to other initiatives. The employee retention accruals reflect the employee retention plans that have been implemented in lieu of our customary bonus plan, due to the ongoing and prolonged downturn in the housing market in order to ensure the retention of executive officers and other key personnel, principally within our corporate services unit and the corporate offices of our four business units.
  (k) Represents the twelve month pro forma effect of business optimization initiatives that have been completed to reduce costs, including $4 million related to the exit of the government at-risk homesale business, $4 million related to the elimination of the 401(k) employer match, $7 million related to the renegotiation of NRT contracts, $6 million for employee retention accruals, $22 million for initiatives to improve the Company Owned Real Estate Brokerage profit margin and Relocation Services fees and $18 million related to other initiatives. The employee retention accruals reflect the employee retention plans that have been implemented in lieu of our customary bonus plan, due to the ongoing and prolonged downturn in the housing market in order to ensure the retention of executive officers and other key personnel, principally within our corporate services unit and the corporate offices of our four business units.

 

 

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  (l) Represents the elimination of non-cash expenses, including $6 million of stock-based compensation expense and $1 million of other non-cash items less $9 million for the change in the allowance for doubtful accounts and notes reserves from April 1, 2010 through March 31, 2011.
  (m) Represents the elimination of non-cash expenses, including $6 million of stock-based compensation expense, less $8 million for the change in the allowance for doubtful accounts and notes reserves from January 1, 2010 through December 31, 2010 and $2 million of other non-cash items.
  (n) Represents the elimination of non-cash expenses, including a $14 million write-down of a cost method investment acquired in 2006, $12 million for the change in the allowance for doubtful accounts and the reserves for development advance notes and promissory notes from January 1, 2009 through December 31, 2009, $7 million of stock-based compensation expense, and $1 million related to the unrealized net losses on foreign currency transactions and foreign currency forward contracts.
  (o) Represents the elimination of non-cash expenses including $22 million for the change in the allowance for doubtful accounts and $17 million related to the reserve for development advance notes and promissory notes from January 1, 2008 through December 31, 2008, $7 million of stock based compensation expense, $14 million related to net losses on foreign currency transactions and foreign currency forward contracts.
  (p) Reflects the adjustment for the negative impact of fair value adjustments for purchase accounting at the operating business segments primarily related to deferred rent.
  (q) Represents the estimated impact of acquisitions and new franchisees as if they had been acquired or signed as of the beginning of the twelve-month periods. We have made a number of assumptions in calculating such estimate and there can be no assurance that we would have generated the projected levels of EBITDA had we owned the acquired entities or entered into the franchise contracts as of the beginning of the twelve-month periods.
  (r) Represents elimination of annual management fees payable to Apollo for the twelve-month periods.
  (s) Wright Express Corporation (“WEX”) was divested by Cendant in February 2005 through an initial public offering (“IPO”). As a result of such IPO, the tax basis of WEX’s tangible and intangible assets increased to their fair market value which may reduce federal income tax that WEX might otherwise be obligated to pay in future periods. Under Article III of the Tax Receivable Agreement dated February 22, 2005 among WEX, Cendant and Cartus (the “TRA”), WEX was required to pay Cendant 85% of any tax savings related to the increase in fair value utilized for a period of time that we expect will be beyond the maturity of the notes. Cendant is required to pay 62.5% of these tax-savings payments received from WEX to Realogy. On June 26, 2009, Realogy entered into a Tax Receivable Prepayment Agreement with WEX, pursuant to which WEX simultaneously paid Realogy the sum of $51 million, less expenses of approximately $2 million, as prepayment in full of its remaining contingent obligations to Realogy under Article III of the TRA.
  (t) Reflects incremental borrowing costs incurred as a result of the securitization facilities refinancing for the twelve-month periods.
  (u) Represents the expenses incurred in connection with our unsuccessful debt modification activities in the third quarter of 2009 and 2008.
  (v)

Represents senior secured net debt, which is equal to total borrowings which are secured by a first priority lien on our assets plus capital lease obligations less readily available cash. Pursuant to the terms of the senior secured credit facility, senior secured debt does not include First and a Half Lien Notes, Second Lien Loans, other bank indebtedness not secured by a first lien on our assets, securitization obligations or Unsecured Notes. The senior secured debt as of March 31, 2011 was $2,486 million plus $13 million of capital lease obligations less $72 million of readily available cash as of March 31, 2011. The senior secured debt as of December 31, 2010 was $3,059 million plus $12 million of capital lease obligations less $166 million of readily available cash as of December 31, 2010. The senior secured debt as of December 31, 2009 was $3,091 million plus $14 million of capital lease obligations less $219 million of readily available cash as of December 31, 2009. The senior secured

 

 

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debt as of December 31, 2008 was $3,638 million plus $14 million of capital lease obligations less $402 million of readily available cash as of December 31, 2008.

(4) Represents the portion of relocation receivables and advances, relocation properties held for sale and other related assets that collateralize our securitization obligations.
(5) For the successor period, Equity (deficit) is comprised of the capital contribution of $2,001 million from affiliates of Apollo and co-investors offset by the net loss for the period.

The following table represents key business drivers for the periods set forth below:

 

     Three Months Ended
March 31,
     Year Ended
December  31,
 
     2011      2010            2010                  2009                  2008        

Operating Statistics:

              

Real Estate Franchise Services (1)

              

Closed homesale sides (2)

     184,643         193,340         922,341         983,516         995,622   

Average homesale price (3)

   $ 193,710       $ 188,478       $ 198,076       $ 190,406       $ 214,271   

Average homesale broker commission rate (4)

     2.54%         2.55%         2.54%         2.55%         2.52%   

Net effective royalty rate (5)

     4.87%         5.04%         5.00%         5.10%         5.12%   

Royalty per side (6)

   $ 251       $ 252       $ 262       $ 257       $ 287   

Company Owned Real Estate Brokerage Services (7)

              

Closed homesale sides (2)

     51,200         52,532         255,287         273,817         275,090   

Average homesale price (3)

   $ 414,164       $ 417,782       $ 435,500       $ 390,688       $ 479,301   

Average homesale broker commission rate (4)

     2.50%         2.48%         2.48%         2.51%         2.48%   

Gross commission income per side (8)

   $ 11,188       $ 11,161       $ 11,571       $ 10,519       $ 12,612   

Relocation Services

              

Initiations (9)

     35,108         32,429         148,304         114,684         136,089   

Referrals (10)

     12,812         12,109         69,605         64,995         71,743   

Title and Settlement Services

              

Purchase title and closing units (11)

     18,971         19,947         94,290         104,689         110,462   

Refinance title and closing units (12)

     16,826         11,935         62,225         69,927         35,893   

Average price per closing unit (13)

   $ 1,386       $ 1,353       $ 1,386       $ 1,317       $ 1,500   

 

(1) These amounts include only those relating to third-party franchisees and do not include amounts relating to the Company Owned Real Estate Brokerage Services segment.
(2) A closed homesale side represents either the “buy” side or the “sell” side of a homesale transaction.
(3) Represents the average selling price of closed homesale transactions.
(4) Represents the average commission rate earned on either the “buy” side or “sell” side of a homesale transaction.
(5) Represents the average percentage of our franchisees’ commission revenue (excluding NRT) paid to the Real Estate Franchise Services segment as a royalty. The net effective royalty rate does not include the effect of non-standard incentives granted to some franchisees.
(6) Represents net domestic royalties earned from our franchisees (excluding NRT) divided by the total number of our franchisees’ closed homesale sides.
(7) Our real estate brokerage business has a significant concentration of offices and transactions in geographic regions where home prices are at the higher end of the U.S. real estate market, particularly the east and west coasts. The real estate franchise business has franchised offices that are more widely dispersed across the United States than our real estate brokerage operations. Accordingly, operating results and homesale statistics may differ between our brokerage and franchise businesses based upon geographic presence and the corresponding homesale activity in each geographic region.
(8) Represents gross commission income divided by closed homesale sides.

 

 

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(9) Represents the total number of transferees served by the relocation services business. The amounts presented include Primacy initiations of 7,712 for the three months ended March 31, 2011, 5,177 for the period January 21, 2010 through March 31, 2010 and 26,087 initiations for the year ended December 31, 2010 as a result of the acquisition of Primacy in January 2010.
(10) Represents the number of referrals from which we earned revenue from real estate brokers. The amounts presented include Primacy referrals of 968 for the three months ended March 31, 2011, 716 for the period January 21, 2010 through March 31, 2010 and 4,997 referrals for the year ended December 31, 2010 as a result of the acquisition of Primacy in January 2010.
(11) Represents the number of title and closing units processed as a result of home purchases.
(12) Represents the number of title and closing units processed as a result of homeowners refinancing their home loans.
(13) Represents the average fee we earn on purchase title and refinancing title units.

 

 

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SUMMARY OF THE TERMS OF THE EXCHANGE OFFERS

In connection with the Debt Exchange Offering, Realogy and the guarantors of the Old Notes entered into registration rights agreements (the “Registration Rights Agreements”) with respect to each series of Old Notes with J.P. Morgan Securities LLC, Credit Suisse Securities (USA) LLC and Goldman, Sachs & Co., as dealer managers (the “Dealer Managers”) in the Debt Exchange Offering. Under the Registration Rights Agreements, Realogy agreed to file a registration statement relating to the New Notes and cause it to become effective on or prior to July 29, 2011.

The Registration Statement, of which this prospectus forms a part, was filed to comply with Realogy’s obligations under the Registration Rights Agreements.

You are entitled to exchange in the Exchange Offers your Old Notes for New Notes which are identical in all material respects to the Old Notes except that:

 

   

the New Notes have been registered under the Securities Act and will be freely tradable by persons who are not affiliated with us;

 

   

the New Notes are not entitled to registration rights which are applicable to the Old Notes under the Registration Rights Agreements; and

 

   

Realogy’s obligation to pay additional interest on the Old Notes as described in the Registration Rights Agreements does not apply to the New Notes.

 

New Senior Notes

Realogy is offering to exchange up to $491,824,000 aggregate principal amount of its 11.50% Senior Notes due 2017, which have been registered under the Securities Act, for up to $491,824,000 aggregate principal amount of its outstanding 11.50% Senior Notes due 2017. Old 11.50% Senior Notes may be exchanged only in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.

 

  Realogy is offering to exchange up to $129,579,298 aggregate principal amount of its 12.00% Senior Notes due 2017, which have been registered under the Securities Act, for up to $129,579,298 aggregate principal amount of its outstanding 12.00% Senior Notes due 2017. Old 12.00% Senior Notes may be exchanged only in denominations of $2,000 and integral multiples of $1.00 in excess of $2,000.

 

  Except with respect to interest rate, the terms of the New 11.50% Senior Notes and the New 12.00% Senior Notes are identical.

 

New 13.375% Senior Subordinated Notes

Realogy is offering to exchange up to $10,282,000 aggregate principal amount of its 13.375% Senior Subordinated Notes due 2018, which have been registered under the Securities Act, for up to $10,282,000 aggregate principal amount of its outstanding 13.375% Senior Subordinated Notes due 2018. Old 13.375% Senior Subordinated Notes may be exchanged only in denominations of $2,000 and integral multiples of $1,000 in excess of $2,000.

 

Resales

Based on interpretations by the staff of the SEC (the “Staff”) set forth in no-action letters issued to third parties, we believe that the New Notes issued pursuant to the Exchange Offers in exchange for the Old

 

 

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Notes may be offered for resale, resold and otherwise transferred by you (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration provisions of the Securities Act, provided that you:

 

   

are acquiring the New Notes in the ordinary course of business, and

 

   

have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the New Notes.

 

  Each participating broker-dealer that receives New Notes for its own account pursuant to the Exchange Offers in exchange for Old Notes that were acquired as a result of market-making or other trading activity must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes. See “Plan of Distribution.”

 

  Any holder of Old Notes who:

 

   

is our affiliate;

 

   

does not acquire the New Notes in the ordinary course of business; or

 

   

tenders in the Exchange Offers with the intention to participate, or for the purpose of participating, in a distribution of New Notes

 

  cannot rely on the position of the Staff expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co. Incorporated or similar no-action letters and, in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes.

 

Expiration; Withdrawal of Tenders

The Exchange Offers will expire at 5:00 p.m., New York City time on June 20, 2011, or such later date and time to which Realogy extends them (the “Expiration Date”). Realogy does not currently intend to extend the Expiration Date. A tender of Old Notes pursuant to the Exchange Offers may be withdrawn at any time prior to the Expiration Date. Any Old Notes not accepted for exchange for any reason will be returned without expense to the tendering holder promptly after the expiration or termination of the Exchange Offers.

 

Delivery of the New Notes

The New Notes issued pursuant to the Exchange Offers will be delivered to the holders who tender Old Notes promptly following the Expiration Date.

 

Conditions to the Exchange Offers

The Exchange Offers are subject to customary conditions, some of which Realogy may waive. See “The Exchange Offers—Certain Conditions to the Exchange Offers.”

 

Procedures for Tendering Old Notes

If you wish to accept the Exchange Offers, you must complete, sign and date the accompanying letter of transmittal, or a copy of the letter

 

 

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of transmittal, according to the instructions contained in this prospectus and the letter of transmittal. You must also mail or otherwise deliver the letter of transmittal, or the copy, together with the Old Notes and any other required documents, to the Exchange Agent (as defined below) at the address set forth on the cover of the letter of transmittal. If you hold Old Notes through The Depository Trust Company (“DTC”) and wish to participate in the Exchange Offers, you must comply with the Automated Tender Offer Program procedures of DTC, by which you will agree to be bound by the letter of transmittal.

 

  By signing or agreeing to be bound by the letter of transmittal, you will represent to us that, among other things:

 

   

any New Notes that you will receive will be acquired in the ordinary course of your business;

 

   

you have no arrangement or understanding with any person or entity to participate in the distribution of the New Notes;

 

   

if you are a broker-dealer that will receive New Notes for your own account in exchange for Old Notes that were acquired as a result of market-making activities, that you will deliver a prospectus, as required by law, in connection with any resale of such New Notes; and

 

   

you are not our “affiliate” as defined in Rule 144 under the Securities Act.

 

Shelf Registration Statement

In certain circumstances, Realogy is obligated to file and cause the SEC to declare effective a shelf registration statement with respect to the resale of the Old Notes and to keep the shelf registration statement effective for up to two years after the effective date of the shelf registration statement (or shorter period that will terminate when all Old Notes covered by such shelf registration statement have been sold). These circumstances include:

 

   

if the Exchange Offers are not permitted by applicable law or SEC policy;

 

   

if the Exchange Offers are not consummated within 30 business days after notice of the Exchange Offers is required to be mailed to holders of Old Notes; and

 

   

prior to the 20th day following consummation of the Exchange Offers, upon the request of any holder of Old Notes that (A) is prohibited by applicable law or SEC policy from participating in the Exchange Offers, or (B) may not resell the New Notes acquired in the Exchange Offers without delivering a prospectus, and this prospectus is not appropriate or available for such resales by such holder, or (C) is a broker-dealer that holds Old Notes acquired directly from Realogy or one of its affiliates.

 

Effect on Holders of Old Notes

As a result of the making of, and upon acceptance for exchange of all validly tendered Old Notes pursuant to the terms of, the Exchange

 

 

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Offers, Realogy will have fulfilled a covenant contained in the Registration Rights Agreements and, accordingly, additional interest on the Old Notes, if any, shall no longer accrue and Realogy will no longer be obligated to pay additional interest as described in the applicable Registration Rights Agreement. If you are a holder of Old Notes and do not tender your Old Notes in the Exchange Offers, you will continue to hold such Old Notes and you will be entitled to all the rights and limitations applicable to the Old Notes in the applicable indenture governing the Old Notes except for any rights under the applicable Registration Rights Agreement that by their terms terminate upon the consummation of the Exchange Offers.

 

Consequences of Failure to Exchange

All untendered Old Notes will continue to be subject to the restrictions on transfer provided for in the Old Notes and in the applicable indenture governing the Old Notes. In general, the Old Notes may not be offered or sold unless registered under the Securities Act, except pursuant to an exemption from, or in a transaction not subject to, the Securities Act and applicable state securities laws. Other than in connection with the Exchange Offers, or as otherwise required under certain limited circumstances pursuant to the terms of the Registration Rights Agreements, Realogy does not currently anticipate that it will register the Old Notes under the Securities Act.

 

Certain U.S. Federal Income Tax Considerations

The exchange of Old Notes for New Notes in the Exchange Offers will not be a taxable event for United States Federal income tax purposes. See “Certain U.S. Federal Income Tax Considerations.”

 

Use of Proceeds

We will not receive any cash proceeds from the issuance of the New Notes in the Exchange Offers.

 

Exchange Agent

Bondholder Communications Group LLC is the exchange agent (the “Exchange Agent”) for the Exchange Offers. The address and telephone number of the Exchange Agent are set forth in the section captioned “The Exchange Offers—Exchange Agent.”

 

 

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SUMMARY OF THE TERMS OF THE NEW NOTES

The summary below describes the principal terms of the New Notes. Certain of the terms and conditions described below are subject to important limitations and exceptions. For a more detailed description of the terms and conditions of the New Notes, see the section entitled “Description of Notes.”

 

Issuer

Realogy Corporation, a Delaware corporation.

 

Securities

$491,824,000 aggregate principal amount of 11.50% Senior Notes due 2017.

 

  $129,579,298 aggregate principal amount of 12.00% Senior Notes due 2017.

 

  $10,282,000 aggregate principal amount of 13.375% Senior Subordinated Notes due 2018.

 

Maturity

The New Senior Notes will mature on April 15, 2017. The New 13.375% Senior Subordinated Notes will mature on April 15, 2018.

 

Interest

Cash interest on the New 11.50% Senior Notes accrues at a rate of 11.50% per annum.

 

  Cash interest on the New 12.00% Senior Notes accrues at a rate of 12.00% per annum.

 

  Cash interest on the New 13.375% Senior Subordinated Notes accrues at a rate of 13.375% per annum.

 

  Holders of Old Notes whose Old Notes are accepted for exchange in the Exchange Offers will receive the same interest payment on October 15, 2011 (the next interest payment date with respect to the Old Notes) that they would have received if they had not accepted the Exchange Offers.

 

Interest Payment Dates

Interest on the New Notes will be payable semi-annually in arrears on April 15 and October 15.

 

Optional Redemption

Realogy may redeem some or all of the New Notes at any time on or after April 15, 2013, at the redemption prices set forth in this prospectus, together with accrued and unpaid interest and additional interest, if any, to the date of redemption.

 

  Realogy may also redeem some or all of the New Notes at any time prior to April 15, 2013 (i) at a price equal to 100% of the principal amount of the New Notes to be redeemed, plus accrued and unpaid interest and additional interest, if any, plus a “make-whole” premium or (ii) with the net proceeds of certain equity offerings at the redemption prices set forth in this prospectus.

 

Mandatory Offers to Purchase

Upon a Change of Control (as defined below), Realogy will be required to make an offer to purchase holders’ New Notes at a price equal to 101% of the principal amount thereof, together with accrued and unpaid interest and additional interest, if any, to the date of purchase.

 

 

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  Certain asset dispositions will be triggering events which may require Realogy to use the proceeds from those asset dispositions to make an offer to purchase the New Notes at 100% of their principal amount, together with accrued and unpaid interest and additional interest, if any, to the date of purchase if such proceeds are not otherwise used within 450 days:

 

   

to repay secured indebtedness, including indebtedness under the senior secured credit facility (with a corresponding permanent reduction in commitment, if applicable), and certain other indebtedness; or

 

   

to invest or commit to invest in one or more businesses, assets, property or capital expenditures used or useful in a similar business or that replace the properties and assets that are the subject of the asset sale.

 

Guarantees

The New Senior Notes, like the Old Senior Notes, will be guaranteed on an unsecured senior basis, and the New 13.375% Senior Subordinated Notes, like the Old 13.375% Senior Subordinated Notes, will be guaranteed on an unsecured senior subordinated basis, in each case, by each of Realogy’s U.S. direct or indirect restricted subsidiaries that is a guarantor under the senior secured credit facility. Holdings will also guarantee the New Senior Notes, like the Old Senior Notes, on an unsecured senior subordinated basis and the New 13.375% Senior Subordinated Notes, like the Old 13.375% Senior Subordinated Notes, on an unsecured junior subordinated basis. Subject to certain exceptions, any domestic restricted subsidiary that in the future guarantees Realogy’s indebtedness, including indebtedness under the senior secured credit facility, or indebtedness of any other guarantor, will also guarantee the New Notes. Except in certain circumstances, each guarantee will be released upon the release of the guarantor from its guarantee under the senior secured credit facility and/or the repayment of the indebtedness that resulted in the obligation to guarantee the New Notes. If Realogy fails to make payments on the New Notes, the guarantors, including Holdings, must make them instead. Each entity, other than Holdings, that guarantees Realogy’s obligations under the Notes and the indentures governing the Notes is referred to in this prospectus as a “Note Guarantor.”

 

 

As of and for the three months ended March 31, 2011, Realogy’s subsidiaries that are not Note Guarantors represented 7.1% of its total assets (2.2% of its total assets excluding assets of its non-guarantor securitization entities), 4.3% of its total liabilities (1.0% of its total liabilities excluding liabilities of its non-guarantor securitization entities), 7.3% of its net revenue (7.2% of its net revenue excluding net revenue of its non-guarantor securitization entities), 5.5% of its loss before income taxes, equity in earnings and noncontrolling interests (5.1% of its loss before income taxes, equity in earnings and noncontrolling interests excluding income before income taxes, equity in earnings and noncontrolling interests of its non-guarantor securitization entities) and 118.2% of its EBITDA (100% of its

 

 

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EBITDA excluding EBITDA of its non-guarantor securitization entities), in each case after intercompany eliminations.

 

  As of and for the year ended December 31, 2011, Realogy’s subsidiaries that are not Note Guarantors represented 7.2% of its total assets (2.4% of its total assets excluding assets of its non-guarantor securitization entities), 4.6% of its total liabilities (1.0% of its total liabilities excluding liabilities of its non-guarantor securitization entities), 5.1% of its net revenue (5.1% of its net revenue excluding net revenue of its non-guarantor securitization entities), 600% of its income before income taxes, equity in earnings and noncontrolling interests (850% of its income before income taxes, equity in earnings and noncontrolling interests excluding income before income taxes, equity in earnings and noncontrolling interests of its non-guarantor securitization entities) and 7.9% of its EBITDA (7.7% of its EBITDA excluding EBITDA of its non-guarantor securitization entities), in each case after intercompany eliminations.

 

Ranking

The New Senior Notes and the guarantees thereof will be Realogy’s and the Note Guarantors’ unsecured senior obligations and will:

 

   

be effectively subordinated to all of Realogy’s and the Note Guarantors’ existing and future senior secured debt, to the extent of the value of the assets securing such debt;

 

   

be equal in right of payment with all of Realogy’s and the Note Guarantors’ existing and future unsecured senior debt, including the Old Senior Notes and the related guarantees, to the extent outstanding following the Exchange Offers; and

 

   

be senior in right of payment to all of Realogy’s and the Note Guarantors’ existing and future subordinated debt, including the 12.375% Senior Subordinated Notes, the New 13.375% Senior Subordinated Notes, the Old 13.375% Senior Subordinated Notes, to the extent outstanding following the Exchange Offers, the Convertible Notes and the related guarantees.

 

  The New 13.375% Senior Subordinated Notes and the guarantees thereof will be Realogy’s and the Note Guarantors’ unsecured senior subordinated obligations and will:

 

   

be subordinated in right of payment to all of Realogy’s and the Note Guarantors’ existing and future senior debt, including Realogy’s obligations under the senior secured credit facility, the Existing Senior Notes, the New Senior Notes, the Old Senior Notes, to the extent outstanding following the Exchange Offers, and the related guarantees;

 

   

be equal in right of payment with all of Realogy’s and the Note Guarantors’ existing and future senior subordinated debt, including the 12.375% Senior Subordinated Notes, the Old 13.375% Senior Subordinated Notes, to the extent outstanding following the Exchange Offers, the Convertible Notes and the related guarantees; and

 

 

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rank senior in right of payment to all of Realogy’s and the Note Guarantors’ future debt that is by its terms subordinated to the New 13.375% Senior Subordinated Notes.

 

  The guarantee by Holdings will be Holdings’ unsecured senior subordinated obligation, will be equal in right of payment to all existing and future subordinated indebtedness of Holdings and will be junior in right of payment to all existing and future senior indebtedness of Holdings.

 

  In addition, the New Notes and the related guarantees will be structurally subordinated to all of the existing and future liabilities and obligations (including trade payables, but excluding intercompany liabilities) of each of Realogy’s subsidiaries that is not a Note Guarantor.

 

  As of March 31, 2011:

 

   

Realogy and the Note Guarantors had approximately $3,836 million of senior secured indebtedness, including approximately $2,486 million of first lien indebtedness under the senior secured credit facility (without giving effect to $105 million of outstanding letters of credit under the senior secured credit facility and $517 million of undrawn availability under the revolving credit facility), $700 million under the First and a Half Lien Notes and $650 million of Second Lien Loans, all of which are effectively senior to the New Notes, to the extent of the value of the assets securing such debt;

 

   

Realogy and the Note Guarantors had approximately $4,666 million of senior indebtedness, including senior secured indebtedness, all of which are structurally senior to the New 13.375% Senior Subordinated Notes;

 

   

Realogy and the Note Guarantors had approximately $2,307 million of senior subordinated indebtedness, all of which are pari passu with the New 13.375% Senior Subordinated Notes; and

 

   

our Non-Note Guarantor subsidiaries had approximately $400 million of total liabilities (approximately $311 million of which consisted of obligations under our credit facilities governing our relocation securitization programs that are collateralized by relocation assets (the “Securitization Facilities”)), all of which are structurally senior to the New Notes. In addition, our securitization subsidiaries had been permitted to incur approximately $253 million of additional secured relocation obligations under our Securitization Facilities, subject to maintaining sufficient relocation assets for collateralization, all of which are structurally senior to the New Notes and the Convertible Notes.

 

 

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Covenants

Realogy will issue the New Notes under the indentures under which the applicable series of Old Notes were issued. The indentures governing the Notes contain covenants that, among other things, limit Realogy’s ability and the ability of its restricted subsidiaries to:

 

   

incur or guarantee additional indebtedness, or issue disqualified stock or preferred stock;

 

   

incur debt that is junior to senior indebtedness and senior to the New 13.375% Senior Subordinated Notes;

 

   

pay dividends or make distributions to Realogy’s stockholders;

 

   

repurchase or redeem capital stock or subordinated indebtedness;

 

   

make investments or acquisitions;

 

   

incur restrictions on the ability of certain of our subsidiaries to pay dividends or to make other payments to Realogy;

 

   

enter into transactions with affiliates;

 

   

create liens;

 

   

merge or consolidate with other companies or transfer all or substantially all of our assets;

 

   

transfer or sell assets, including capital stock of subsidiaries; and

 

   

prepay, redeem or repurchase debt that is junior in right of payment to the New Notes.

These covenants are subject to a number of important exceptions and qualifications. The indentures governing the Notes also limit Realogy’s ability and the ability of its restricted subsidiaries to, subject to limited exceptions, make any principal payment on, or redeem, repurchase, defease or otherwise acquire or retire for value, in each case, any of the Existing Notes prior to April 15, 2012, in the case of any of the Existing Senior Notes, and April 15, 2013, in the case of the 12.375% Senior Subordinated Notes. For so long as the applicable Notes have an investment grade rating from both Standard & Poor’s, a division of The McGraw-Hill Companies, Inc., and Moody’s Investors Service, Inc. and no default has occurred and is continuing under the indenture governing the applicable Notes, Realogy will not be subject to certain of the covenants listed above. For more details, see “Description of Notes.”

 

Risk Factors

See “Risk Factors” for a discussion of factors that should be considered in connection with a decision to participate in the Exchange Offers and an investment in the New Notes.

 

 

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RISK FACTORS

You should carefully consider each of the following risk factors and all of the other information set forth in this prospectus before making any investment decision. The risk factors generally have been separated into three groups: (1) risks related to the New Notes and our indebtedness; (2) risks related to our business; and (3) risks related to Realogy’s separation from Cendant. Based on the information currently known to us, we believe that the following information identifies the most significant risk factors affecting our company and the Exchange Offers. Additional risks and uncertainties not presently known to us may also adversely affect our business. In addition, past financial performance may not be a reliable indicator of future performance and historical trends should not be used to anticipate results or trends in future periods. You should carefully consider the following risk factors and all other information contained in this prospectus before deciding to exchange any Old Notes in the Exchange Offers.

Risks Related to the New Notes and our Indebtedness

Our significant indebtedness could prevent us from meeting our obligations under our debt instruments and could adversely affect our ability to fund our operations, react to changes in the economy or our industry, or incur additional borrowings under our existing facilities.

We are significantly encumbered by our debt obligations. As of March 31, 2011, our total debt, excluding the securitization obligations, was $6,973 million (without giving effect to $105 million of outstanding letters of credit under the senior secured credit facility and $517 million of undrawn availability under the revolving credit facility). In addition, as of March 31, 2011, our current liabilities included $311 million of securitization obligations which were collateralized by $390 million of securitization assets that are not available to pay our general obligations.

Our indebtedness was principally incurred to finance Realogy’s acquisition by Apollo in April 2007 and reflected our then current earnings and our expectations that the housing downturn would recover in the near term. While our total debt has increased since the date of Realogy’s acquisition in order to fund negative cash flows, the industry and economy have experienced significant declines that have negatively impacted our operating results. Revenues for the year ended December 31, 2010 compared to the year ended December 31, 2007, on a pro forma combined basis, have decreased by approximately 32%. As a result, we have been, and continue to be, challenged by our heavily leveraged capital structure. There can be no assurance that we will be able to reduce the level of our leverage or debt in the future.

Our substantial degree of leverage could have important consequences, including the following:

 

   

it causes a substantial portion of our cash flows from operations to be dedicated to the payment of interest and required amortization on our indebtedness and not be available for other purposes, including our operations, capital expenditures and future business opportunities or principal repayment;

 

   

it could cause us to be unable to maintain compliance with the senior secured leverage ratio under the senior secured credit facility;

 

   

it could cause us to be unable to meet our debt service requirements under the senior secured credit facility or the indentures governing the Unsecured Notes and the First and a Half Lien Notes or meet our other financial obligations;

 

   

it may limit our ability to incur additional borrowings under our existing facilities or securitizations, to obtain additional debt or equity financing for working capital, capital expenditures, business development, debt service requirements, acquisitions or general corporate or other purposes, or to refinance our indebtedness;

 

   

it exposes us to the risk of increased interest rates because a portion of our borrowings, including borrowings under the senior secured credit facility, are at variable rates of interest;

 

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it may limit our ability to adjust to changing market conditions and place us at a competitive disadvantage compared to our competitors that have less debt;

 

   

it may cause a further downgrade of our debt and long-term corporate ratings;

 

   

it may cause us to be more vulnerable to periods of negative or slow growth in the general economy or in our business, or may cause us to be unable to carry out capital spending that is important to our growth; and

 

   

it may limit our ability to attract and retain key personnel.

We may not be able to generate sufficient cash to service all of our indebtedness and be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.

Our ability to make scheduled payments or to refinance our debt obligations depends on our financial and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We have needed to incur additional debt in order to fund negative cash flow. We cannot assure you that we will maintain a level of cash flows from operating activities and from drawings on our revolving credit facilities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness.

If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay capital expenditures, sell assets or operations, seek additional debt or equity capital or restructure or refinance our indebtedness. We cannot assure you that we would be able to take any of these actions, that these actions would be successful and permit us to meet our scheduled debt service obligations or that these actions would be permitted under the terms of our existing or future debt agreements. In the absence of such operating results and resources, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. The senior secured credit facility and the indentures governing the Notes and the First and a Half Lien Notes restrict our ability to dispose of assets and use the proceeds from the disposition. We may not be able to consummate those dispositions or realize the related proceeds from them and these proceeds may not be adequate to meet any debt service obligations then due.

If we cannot make scheduled payments on our debt, we will be in default and, as a result:

 

   

our debt holders could declare all outstanding principal and interest to be due and payable; and

 

   

the lenders under the senior secured credit facility could terminate their commitments to lend us money and foreclose against the assets securing their borrowings.

An event of default under the senior secured credit facility would adversely affect our operations and our ability to satisfy obligations under our indebtedness.

The senior secured credit facility contains restrictive covenants, including a requirement that we maintain a specified senior secured leverage ratio, which is defined as the ratio of our total senior secured debt (net of unrestricted cash and permitted investments) to trailing 12-month Adjusted EBITDA. Specifically measured at the last day of each quarter, our senior secured leverage ratio may not exceed 4.75 to 1.0. Total senior secured debt, for purposes of this ratio, does not include the First and a Half Lien Notes, Second Lien Loans, other bank indebtedness not secured by a first lien on our assets (including indebtedness supported by letters of credit issued under the senior secured credit facility), securitization obligations or the Unsecured Notes. For the twelve months ended March 31, 2011, we were in compliance with the senior secured leverage ratio covenant with a ratio of 3.83 to 1.0. Based upon our financial forecast, we expect to remain in compliance with the senior secured leverage ratio covenant for at least the next 12 months. If a housing recovery is delayed further or is weak, we will be subject to additional pressure in maintaining compliance with our senior secured leverage ratio. In future

 

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periods, if we are unable to renew or refinance bank indebtedness secured by letters of credit issued under the senior secured credit facility (which are not included in the calculation of the senior secured leverage ratio) and the letters of credit are drawn upon, the reimbursement obligations related to those letters of credit issued under the senior secured credit facility will be included in the calculation of the senior secured leverage ratio. A failure to maintain compliance with the senior secured leverage ratio, or a breach of any of the other restrictive covenants, would result in a default under the senior secured credit facility.

We have the right to cure an event of default of the senior secured leverage ratio in three of any four consecutive quarters through the issuance of additional Holdings equity for cash, which would be infused as capital into Realogy to increase Adjusted EBITDA for purposes of calculating the senior secured leverage ratio for the applicable twelve-month period and reduce net senior secured indebtedness upon actual receipt of such capital. If we are unable to maintain compliance with the senior secured leverage ratio and we fail to remedy or avoid a default through an equity cure permitted thereunder, there would be an “event of default” under the senior secured credit facility. Other events of default include, without limitation, nonpayment, material misrepresentations, insolvency, bankruptcy, certain material judgments, change of control, and cross-events of default on material indebtedness as well as failure to obtain an unqualified audit opinion by 90 days after the end of any fiscal year. Upon the occurrence of any event of default under the senior secured credit facility, the lenders:

 

   

will not be required to lend any additional amounts to us;

 

   

could elect to declare all borrowings outstanding, together with accrued and unpaid interest and fees, to be immediately due and payable;

 

   

could require us to apply all of our available cash to repay these borrowings; or

 

   

could prevent us from making payments on the Unsecured Notes or the First and a Half Lien Notes,

any of which could result in an event of default under the First and a Half Lien Notes, the Unsecured Notes or our Apple Ridge Funding LLC securitization program.

If we were unable to repay the amounts outstanding under the senior secured credit facility, the lenders under the senior secured credit facility could proceed against the collateral granted to them to secure the indebtedness thereunder. We have pledged a significant portion of our assets as collateral under the senior secured credit facility. If the lenders under the senior secured credit facility accelerate the repayment of borrowings, we may not have sufficient assets to repay the senior secured credit facility and our other indebtedness or borrow sufficient funds to refinance such indebtedness. Notwithstanding the completion of the Refinancing Transactions, our total indebtedness was not and will not be significantly reduced unless and until the Convertible Notes issued in the Debt Exchange Offering are converted into equity. In the future, we may need to seek new financing, or explore the possibility of amending the terms of the senior secured credit facility, and we may not be able to do so on commercially reasonable terms, or terms that are acceptable to us, if at all.

If an event of default is continuing under the senior secured credit facility, the First and a Half Lien Notes or our other material indebtedness, such event could cause a termination of our ability to obtain future advances under, and/or amortization of, our Apple Ridge Funding LLC securitization program.

The New Notes and the related guarantees will be effectively subordinated to all of our secured debt and the secured debt of the Note Guarantors and if a default occurs, we and the Note Guarantors may not have sufficient funds to fulfill our obligations under the New Notes and the related guarantees.

The New Notes and the related guarantees will be general unsecured obligations but Realogy’s obligations under the senior secured credit facility and the First and a Half Lien Notes and each Note Guarantor’s obligations under its guarantee of the senior secured credit facility and the First and a Half Lien Notes are secured by a security interest in substantially all of our assets and the assets of the Note Guarantors. The New Notes will be effectively subordinated to all of our and the Note Guarantors’ secured indebtedness to the extent of the value of

 

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the assets securing that indebtedness. As of March 31, 2011, Realogy and the Note Guarantors had approximately $3,836 million of senior secured indebtedness, including approximately $2,486 million of first lien indebtedness under the senior secured credit facility (without giving effect to $105 million of outstanding letters of credit under the senior secured credit facility and $517 million of undrawn availability under the revolving credit facility), $700 million under the First and a Half Lien Notes, and $650 million of Second Lien Loans, all of which are effectively senior to the New Notes. In addition, subject to some limitations, the indentures governing the Notes permit Realogy, subject to certain limitations, to incur additional secured indebtedness and the New Notes and the related guarantees will be effectively junior to any additional secured indebtedness we may incur.

In the event of our bankruptcy, liquidation, reorganization or other winding up, our assets that secure our secured indebtedness will be available to pay obligations on the Notes only after all secured indebtedness and, in the case of the 12.375% Senior Subordinated Notes, the Old 13.375% Senior Subordinated Notes and the New 13.375% Senior Subordinated Notes, all senior indebtedness, together with accrued interest, has been repaid in full from those assets. Because the senior secured credit facility and the First and a Half Lien Notes are secured obligations, if we fail to comply with the terms of the senior secured credit facility or the First and a Half Lien Notes and those creditors or noteholders accelerated the payment of all the funds borrowed thereunder and we were unable to repay such indebtedness, they could foreclose on substantially all of our assets and the assets of our Note Guarantors which serve as collateral. In this event, our secured creditors and holders of the First and a Half Lien Notes would be entitled to be repaid in full from the proceeds of the liquidation of those assets before those assets would be available for distribution to other creditors, including holders of the New Notes. Holders of the New Notes will participate in our remaining assets ratably with all holders of our unsecured indebtedness that is deemed to be of the same class as the New Notes, and potentially with all of our other general creditors. We advise you that there may not be sufficient assets remaining to pay amounts due on any or all the Notes and the related guarantees then outstanding. The guarantees of the New Notes will have a similar ranking with respect to secured and unsecured indebtedness of the Note Guarantors as the New Notes do with respect to our secured and unsecured indebtedness, as well as with respect to any unsecured obligations expressly subordinated in right of payment to the guarantees.

The New Notes will be structurally subordinated to all indebtedness of our existing or future subsidiaries that do not become Note Guarantors.

You will not have any claim as a creditor against any of our existing subsidiaries that are not Note Guarantors or against any of our future subsidiaries that do not become Note Guarantors. Indebtedness and other liabilities, including trade payables, whether secured or unsecured, of those subsidiaries will be structurally senior to your claims against those subsidiaries. As of March 31, 2011, our non-Note Guarantor subsidiaries had approximately $400 million of total liabilities (approximately $311 million of which would have consisted of secured indebtedness under the Securitization Facilities), all of which are structurally senior to the New Notes. In addition, subject to maintaining sufficient relocation assets for collateralization, our securitization subsidiaries were permitted to incur approximately $253 million of additional secured indebtedness under the Securitization Facilities, all of which are structurally senior to the New Notes.

The New Notes will not be guaranteed by any of our foreign subsidiaries, our securitization subsidiaries, our insurance subsidiaries or our qualified foreign corporation holding companies. These non-Note Guarantor subsidiaries are separate and distinct legal entities and have no obligation, contingent or otherwise, to pay any amounts due under the New Notes, or to make any funds available therefor, whether by dividends, loans, distributions or other payments.

In the event of a bankruptcy, liquidation, reorganization or other winding up of any of our non-Note Guarantor subsidiaries, these non-Note Guarantor subsidiaries will pay the holders of their debt, holders of preferred equity interests and their trade creditors before they will be able to distribute any of their assets to us (except to the extent we have a claim as a creditor of such non-Note Guarantor subsidiary). Any right that we or the Note Guarantors have to receive any assets of any of the non-Note Guarantor subsidiaries upon the

 

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bankruptcy, liquidation, reorganization or other winding up of those subsidiaries, and the consequent rights of holders of Notes to realize proceeds from the sale of any of those subsidiaries’ assets, will be effectively subordinated to the claims of those subsidiaries’ creditors, including trade creditors and holders of preferred equity interests of those subsidiaries.

As of and for the three months ended March 31, 2011, our subsidiaries that are not Note Guarantors represented 7.1% of our total assets (2.2% of our total assets excluding assets of our non-guarantor securitization entities), 4.3% of our total liabilities (1.0% of our total liabilities excluding liabilities of our non-guarantor securitization entities), 7.3% of our net revenue (7.2% of our net revenue excluding net revenue of our non-guarantor securitization entities), 5.5% of our loss before income taxes, equity in earnings and noncontrolling interests (5.1% of our loss before income taxes, equity in earnings and noncontrolling interests excluding income before income taxes, equity in earnings and noncontrolling interests of our non-guarantor securitization entities) and 118.2% of our EBITDA (100% of our EBITDA excluding EBITDA of our non-guarantor securitization entities), in each case after intercompany eliminations.

As of and for the year ended December 31, 2010, our subsidiaries that are not Note Guarantors represented 7.2% of our total assets (2.4% of our total assets excluding assets of our non-guarantor securitization entities), 4.6% of our total liabilities (1.0% of our total liabilities excluding liabilities of our non-guarantor securitization entities), 5.1% of our net revenue (5.1% of our net revenue excluding net revenue of our non-guarantor securitization entities), 600% of our income before income taxes, equity in earnings and noncontrolling interests (850% of our income before income taxes, equity in earnings and noncontrolling interests excluding income before income taxes, equity in earnings and noncontrolling interests of our non-guarantor securitization entities) and 7.9% of our EBITDA (7.7% of our EBITDA excluding EBITDA of our non-guarantor securitization entities), in each case after intercompany eliminations.

In addition, the indentures governing the Notes, subject to certain limitations, permit these subsidiaries to incur additional indebtedness and do not contain any limitation on the amount of other liabilities, such as trade payables, that may be incurred by these subsidiaries.

Your right to receive payments on the New 13.375% Senior Subordinated Notes will be junior to all of our and the Note Guarantors’ senior indebtedness, including our and the Note Guarantors’ obligations under the senior secured credit facility, the First and a Half Lien Notes, the Existing Senior Notes, the Old Senior Notes, the New Senior Notes and other existing and future senior debt.

The New 13.375% Senior Subordinated Notes will be general unsecured obligations that will be junior in right of payment to all of our existing and future senior indebtedness, including the senior secured credit facility, the First and a Half Lien Notes, the Existing Senior Notes, the Old Senior Notes and the New Senior Notes. The guarantees of the New 13.375% Senior Subordinated Notes will be general unsecured obligations of the Note Guarantors that will be junior in right of payment to all of the Note Guarantors’ existing and future senior indebtedness, including their guarantee of the senior secured credit facility, the First and a Half Lien Notes, the Existing Senior Notes, the Old Senior Notes and the New Senior Notes. We and the Note Guarantors may not pay principal, premium, if any, interest or other amounts on account of the New 13.375% Senior Subordinated Notes or the related guarantees in the event of a payment default or certain other defaults in respect of certain of our senior indebtedness, including debt under the senior secured credit facility, the First and a Half Lien Notes, the Existing Senior Notes, the Old Senior Notes and the New Senior Notes, unless such senior indebtedness has been paid in full or the default has been cured or waived. In addition, in the event of certain other defaults with respect to our senior indebtedness, we or the Note Guarantors may not be permitted to pay any amount on account of the New 13.375% Senior Subordinated Notes or the related guarantees for a designated period of time. In addition, the New 13.375% Senior Subordinated Notes will be pari passu in right of payment with all of our existing and future senior subordinated indebtedness, including the 12.375% Senior Subordinated Notes, the Old 13.375% Senior Subordinated Notes and the Convertible Notes.

 

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Because of the subordination provisions in the 12.375% Senior Subordinated Notes, the Old 13.375% Senior Subordinated Notes, the New 13.375% Senior Subordinated Notes, the Convertible Notes and the related guarantees, in the event of a bankruptcy, liquidation or dissolution of us or any Note Guarantor, our or the applicable Note Guarantor’s assets will not be available to pay obligations under our senior subordinated indebtedness or the related guarantees until we or the applicable Note Guarantor’s have made all payments on our or their senior indebtedness, respectively. We cannot assure you that sufficient assets will remain after all these payments have been made to make any payments on our senior subordinated indebtedness, including payments of principal or interest when due.

As of March 31, 2011, we and the Note Guarantors had approximately $4,666 million of senior indebtedness (without giving effect to $105 million of outstanding letters of credit under the senior secured credit facility and $517 million of undrawn availability under the revolving credit facility), including first lien indebtedness under the senior secured credit facility, the First and a Half Lien Notes, the Second Lien Loans, the Existing Senior Notes, the Old Senior Notes and other bank indebtedness, all of which are senior to the New 13.375% Senior Subordinated Notes.

Restrictive covenants under our indentures and the senior secured credit facility may limit the manner in which we operate.

The senior secured credit facility and the indentures governing the First and a Half Lien Notes and the Notes contain and any future indebtedness we incur may contain, various covenants and conditions that limit Realogy’s ability to, among other things:

 

   

incur or guarantee additional debt;

 

   

incur debt that is junior to senior indebtedness and senior to the 12.375% Senior Subordinated Notes and New 13.375% Senior Subordinated Notes;

 

   

pay dividends or make distributions to Realogy’s stockholders;

 

   

repurchase or redeem capital stock or subordinated indebtedness;

 

   

make loans, investments or acquisitions;

 

   

incur restrictions on the ability of certain of our subsidiaries to pay dividends or to make other payments to Realogy;

 

   

enter into transactions with affiliates;

 

   

create liens;

 

   

merge or consolidate with other companies or transfer all or substantially all of our assets;

 

   

transfer or sell assets, including capital stock of subsidiaries; and

 

   

prepay, redeem or repurchase the Unsecured Notes and the First and a Half Lien Notes and debt that is junior in right of payment to the Unsecured Notes and the First and a Half Lien Notes.

As a result of these covenants, we are limited in the manner in which we conduct our business and we may be unable to engage in favorable business activities or finance future operations or capital needs.

Variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase significantly.

At March 31, 2011, approximately $2,586 million of our borrowings under the senior secured credit facility and other bank indebtedness, were at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount

 

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borrowed remained the same, and our net income would decrease. Although we have entered into interest rate swaps with a notional value of $425 million, involving the exchange of floating for fixed rate interest payments, to reduce interest rate volatility, such interest rate swaps do not eliminate interest rate volatility for the unswapped portion of our variable rate indebtedness at March 31, 2011.

If we default on our obligations to pay our indebtedness, we may not be able to make payments on the Notes.

Any default under the agreements governing our indebtedness, including a default under the senior secured credit facility that is not waived by the required lenders, and the remedies sought by the holders of such indebtedness, could render us unable to pay principal, premium, if any, and interest on the Notes and substantially decrease the market value of the Notes. If we are unable to generate sufficient cash flow and are otherwise unable to obtain funds necessary to meet required payments of principal, premium, if any, and interest on our indebtedness, or if we otherwise fail to comply with the various covenants, including financial and operating covenants, in the instruments governing our indebtedness (including covenants in the indentures governing the Notes, the 12.375% Senior Subordinated Notes and the First and a Half Lien Notes and the senior secured credit facility), we could be in default under the terms of the agreements governing such indebtedness. In the event of such default, the holders of such indebtedness could elect to declare all the funds borrowed thereunder to be due and payable, together with accrued and unpaid interest, the lenders under the senior secured credit facility could elect to terminate their commitments thereunder and cease making further loans and institute foreclosure proceedings against our assets, we could be forced into bankruptcy or liquidation. If our operating performance declines, we may in the future need to obtain waivers from the required lenders under the senior secured credit facility to avoid being in default, including as a result of our failure to comply with the senior secured leverage ratio. Our senior secured leverage ratio was 3.83 to 1.0 at March 31, 2011. A delayed or weak housing recovery may materially adversely affect our ability to maintain compliance with our senior secured leverage ratio given our highly leveraged capital structure. If we breach our covenants under the senior secured credit facility and seek a waiver, we may not be able to obtain a waiver from the required lenders. If this occurs, we would be in default under the senior secured credit facility, the lenders could exercise their rights, and we could be forced into bankruptcy or liquidation. See “Description of Other Indebtedness” and “Description of Notes.”

We are a holding company and are dependent on dividends and other distributions from our subsidiaries.

We are a holding company with limited direct operations. Our principal assets are the equity interests that we hold in our operating subsidiaries. As a result, we are dependent on dividends and other distributions from those subsidiaries to generate the funds necessary to meet our financial obligations, including the payment of principal and interest on our outstanding debt. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness. In addition, any payment of dividends, distributions, loans or advances to us by our subsidiaries could be subject to restrictions on dividends or repatriation of earnings under applicable local law and monetary transfer restrictions in the jurisdictions in which our subsidiaries operate. In addition, payments to us by our subsidiaries will be contingent upon our subsidiaries’ earnings. Our subsidiaries are permitted under the terms of our indebtedness, including the senior secured credit facility, the indentures governing the Unsecured Notes and the First and a Half Lien Notes, to incur additional indebtedness that may restrict payments from those subsidiaries to us. We cannot assure you that agreements governing current and future indebtedness of our subsidiaries will permit those subsidiaries to provide us with sufficient cash to fund our debt service payments.

Our subsidiaries are legally distinct from us and, except for our existing and future subsidiaries that are guarantors of our indebtedness, including the senior secured credit facility, the Unsecured Notes and the First and a Half Lien Notes, have no obligation, contingent or otherwise, to pay amounts due on our debt or to make funds available to us for such payment.

 

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Realogy may be unable to purchase the Notes upon a change of control.

Upon a change of control, as defined in the indentures governing the Notes, Realogy is required to offer to purchase all of the Notes then outstanding for cash at 101% of the principal amount thereof plus accrued and unpaid interest and additional interest, if any. If a change of control occurs under such indentures, we may not have sufficient funds to pay the change of control purchase price, and we may be required to secure third party financing to do so. We may not be able to obtain this financing on commercially reasonable terms, or on terms acceptable to us, or at all. Further, we may be contractually restricted under the terms of the senior secured credit facility and, in the case of the New 13.375% Senior Subordinated Notes, the terms of our other senior indebtedness, from repurchasing all of the Notes tendered by holders upon a change of control. Accordingly, we may not be able to satisfy our obligations to purchase any Notes unless we are able to refinance or obtain waivers under the senior secured credit facility, the First and a Half Lien Notes and/or the New Senior Notes, as applicable. If our failure to repurchase the Notes upon a change of control would cause a default under the Notes, it would also cause a cross-default under the senior secured credit facility. The senior secured credit facility also provides that a change of control, as defined therein, will be a default that permits lenders to accelerate the maturity of borrowings thereunder and, if such debt is not paid, to enforce security interests in the collateral securing such debt, thereby limiting our ability to raise cash to purchase the Notes, and reducing the practical benefit of repurchase provisions to the holders of the New Notes. Our Securitization Facilities contain, and any of our future debt agreements may contain, similar provisions.

The change of control provisions in the indentures governing the Notes may not protect you in the event that we consummate a highly leveraged transaction, reorganization, restructuring, merger or other similar transaction, unless such transaction constitutes a change of control under such indentures. Such a transaction may not involve a change in voting power or beneficial ownership or, even if it does, may not involve a change in the magnitude required under the definition of change of control in the indentures governing the Notes to trigger our obligation to repurchase the Notes. Except as otherwise described above, the indentures governing the Notes do not contain provisions that permit the holders of the Notes to require Realogy to repurchase or redeem the Notes in the event of a takeover, recapitalization or similar transaction. If an event occurs that does not constitute a change of control as defined in the indentures governing the Notes, Realogy will not be required to make an offer to repurchase the Notes and you may be required to continue to hold your Notes despite the event. In addition, the change of control provisions in the Notes may also delay or prevent an otherwise beneficial takeover of us due to such takeover triggering the related purchase requirement. See “Description of Other Indebtedness” and “Description of Notes—Change of Control.”

There is no public market for the Notes, and we do not know if an active trading market will ever develop or, if a market does develop, whether it will be sustained.

Each series of New Notes will constitute a new issue of securities of the same class as the applicable series of Old Notes, and there is no existing trading market for any series of Notes. Although the dealer managers in the Debt Exchange Offering have informed us that they intend to make a market in each series of Notes, they have no obligation to do so and may discontinue making a market in any series of Notes at any time without notice. In addition, such market-making activities may be limited during the Exchange Offers or while the effectiveness of a shelf registration statement is pending. Therefore, we cannot assure you as to the development or liquidity of any trading market for the Notes.

We do not intend to apply for listing or quotation of any series of Notes on any securities exchange or stock market. In addition, if a large amount of Old Notes are not tendered or are tendered improperly, the limited amount of New Notes that would be issued and outstanding after we consummate the Exchange Offers would reduce liquidity and could lower the market price of those New Notes. The liquidity of any market for each series of Notes will depend on a number of factors, including:

 

   

the number of holders of such series of Notes;

 

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our ability to complete the Exchange Offers;

 

   

our operating performance, financial condition or prospects;

 

   

the market for similar securities;

 

   

the interest of securities dealers in making a market in the applicable series of Notes; and

 

   

prevailing interest rates.

The market, if any, for the New Notes, similar to other non-investment grade debt, may be subject to disruptions that may cause substantial volatility in the prices of the New Notes and any disruptions may adversely affect the prices at which you may sell your Notes. You may not be able to sell your New Notes at a particular time, and the price that you receive when you sell may not be favorable.

Apollo is our controlling stockholder and Paulson may become a significant stockholder. There can be no assurance that Apollo and Paulson will act in our best interests as opposed to their own best interests.

Because of its position as our controlling stockholder, to the extent not otherwise limited in the senior secured credit facility or our indentures, Apollo is able to exercise significant control over decisions affecting us, including:

 

   

our direction and policies, including the appointment and removal of officers;

 

   

mergers or other business combinations and opportunities involving us;

 

   

further issuance of capital stock or other equity or debt securities by us;

 

   

payment of dividends; and

 

   

approval of our business plans and general business development.

In addition, Paulson owns Convertible Notes that may be converted into 21.5% of the total outstanding shares of Common Stock on an as converted basis assuming that all Convertible Notes are converted into shares of Class A Common Stock. Pursuant to the Paulson Securityholders Agreement (as defined below), Paulson also has the right to nominate a member of the Board of Directors or designate a non-voting observer to attend meetings of the Board of Directors and has certain other rights with respect to issuances of our equity and debt securities.

Even if all of the outstanding Convertible Notes held by parties other than Apollo were converted into Class A Common Stock, which has one vote per share, Apollo, by virtue of its ownership of shares of Class B Common Stock (as defined below), which has five votes per share, would continue to control a majority of the voting power of the outstanding Common Stock. In addition, if all of the Convertible Notes were converted into Class A Common Stock, all of the Class B Common Stock would automatically convert into shares of Class A Common Stock and Apollo would then hold 66.2% of the outstanding shares of Class A Common Stock. See “Security Ownership of Certain Beneficial Owners and Management.”

The concentration of ownership held by Apollo could delay, defer or prevent a change of control of us or impede a merger, takeover or other business combination that may be otherwise favorable to us. In addition, pursuant to Holdings’ Amended and Restated Certificate of Incorporation, Apollo has the right to, and will have no duty to abstain from, exercising such right to, conduct business with any business that is competitive or in the same line of business as us, do business with any of our clients, customers or vendors, or make investments in the kind of property in which we may make investments. Apollo is in the business of making or advising on investments in companies and may hold, and may from time to time in the future acquire, interests in or provide advice to businesses that directly or indirectly compete with certain portions of our business or are suppliers or customers of ours. Apollo may also pursue acquisitions that may be complementary to our business, and, as a

 

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result, those acquisition opportunities may not be available to us. So long as Apollo continues to own a significant amount of the equity of Holdings, even if such amount is less than 50%, Apollo will continue to be able to strongly influence or effectively control our decisions.

Because our equity securities are not registered under the Exchange Act and are not listed on any U.S. securities exchange, we are not subject to any of the corporate governance requirements of any U.S. securities exchanges.

If we encounter financial difficulties, or we are unable to pay our debts as they mature, the interests of our equity holders may conflict with those of the holders of first lien indebtedness under the senior secured credit facility, the First and a Half Lien Notes, the Unsecured Notes or any other holder of our debt and such equity holders have no obligation to provide any additional equity or any debt financing to us.

Ratings of the New Notes may cause their trading price to fall and affect the marketability of the New Notes.

The Notes are rated by Moody’s Investors Services, Inc. and Standard & Poor’s Ratings Services. A rating agency’s rating of the Notes is not a recommendation to purchase, sell or hold any particular security, including the Notes. Such ratings are limited in scope, and do not comment as to material risks relating to an investment in the Notes. An explanation of the significance of such rating may be obtained from such rating agency. There is no assurance that such credit ratings will remain in effect for any given period of time. Rating agencies also may lower, suspend or withdraw ratings on the Notes or our other debt in the future. Holders of the Notes will have no recourse against us or any other parties in the event of a change in or suspension or withdrawal of such ratings. Any lowering, suspension or withdrawal of such ratings may have an adverse effect on the market prices or marketability of the Notes.

Federal and state statutes allow courts, under specific circumstances, to void notes and guarantees and require holders of notes to return payments received.

The issuance of the Notes and the related guarantees may be subject to review under federal and state fraudulent transfer and conveyance statutes. While the relevant laws may vary from state to state, under such laws the payment of consideration will be a fraudulent conveyance if (1) we paid the consideration with the intent of hindering, delaying or defrauding creditors or (2) we or any of the guarantors, as applicable, received less than reasonably equivalent value or fair consideration in return for issuing either the New Notes or a guarantee and, in the case of (2) only, one of the following is also true:

 

   

we or any of the guarantors were insolvent or rendered insolvent by reason of the incurrence of the indebtedness;

 

   

payment of the consideration left us or any of the guarantors with an unreasonably small amount of capital to carry on the business; or

 

   

we or any of the guarantors intended to, or believed that we or it would, incur debts beyond our or its ability to pay as they mature.

If a court were to find that the issuance of the Notes or a related guarantee was a fraudulent conveyance, the court could void the payment obligations under the Notes or such guarantee or subordinate the Notes or such guarantee to presently existing and future indebtedness of ours or such guarantor, or require the holders of the Notes to repay any amounts received with respect to the Notes or such guarantee. In the event of a finding that a fraudulent conveyance occurred, you may not receive any repayment on the Notes. Further, the voidance of the Notes could result in an event of default with respect to our other debt and that of the guarantors that could result in acceleration of such debt.

 

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The measures of insolvency for purposes of these fraudulent transfer laws will vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. In general, however, a court would consider an issuer or a guarantor insolvent if:

 

   

the sum of its debts, including contingent and unliquidated liabilities, was greater than the fair saleable value of all of its assets;

 

   

the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

 

   

it could not pay its debts as they became due.

We cannot be certain as to the standards a court would use to determine whether or not we or the Note Guarantors were solvent at the relevant time, or regardless of the standard that a court uses, that the issuance of the Notes and the related guarantees would not be subordinated to our or any guarantor’s other debt.

If the guarantees of the Notes were legally challenged, any such guarantee could also be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of the Note Guarantor, the obligations of the applicable guarantor were incurred for less than fair consideration. A court could thus void the obligations under the guarantees of the Notes, subordinate them to the applicable guarantor’s other debt or take other action detrimental to the holders of the Notes.

Each guarantee of the Notes contains a provision intended to limit the guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its guarantee to be a fraudulent transfer. This provision may not be effective to protect the guarantees from being voided under fraudulent transfer law, or may reduce or eliminate the guarantor’s obligation to an amount that effectively makes such guarantee worthless.

You may be adversely affected if you fail to exchange Old Notes.

Realogy will only issue New Notes in exchange for Old Notes that are timely received by the exchange agent, together with all required documents, including a properly completed and signed letter of transmittal. Therefore, you should allow sufficient time to ensure timely delivery of the Old Notes and you should carefully follow the instructions on how to tender your Old Notes. Neither we nor the exchange agent are required to tell you of any defects or irregularities with respect to your tender of the Old Notes. If you are eligible to participate in the Exchange Offers and do not tender your Old Notes or if we do not accept your Old Notes because you did not tender your Old Notes properly, then, after we consummate the Exchange Offers, you will continue to hold Old Notes that are subject to the existing transfer restrictions and will no longer have any registration rights or be entitled to any additional interest with respect to the Old Notes. In addition:

 

   

if you tender your Old Notes for the purpose of participating in a distribution of the New Notes, you will be required to comply with the registration and prospectus delivery requirements of the Securities Act in connection with any resale of the New Notes; and

 

   

if you are a broker-dealer that receives New Notes for your own account in exchange for Old Notes that you acquired as a result of market-making activities or any other trading activities, you will be required to acknowledge that you will deliver a prospectus in connection with any resale of those New Notes.

We have agreed, that for a period of 180 days after the Exchange Offers are consummated, we will make this prospectus available to any broker-dealer for use in connection with any resales of the New Notes.

 

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Risks Related to Our Business

The residential real estate market is cyclical and we are negatively impacted by downturns in this market.

The residential real estate market tends to be cyclical and typically is affected by changes in general economic conditions which are beyond our control. The U.S. residential real estate market has recently shown some signs of stabilizing from a lengthy and deep downturn that began in the second half of 2005. However, we cannot predict when the market and related economic forces will return the U.S. residential real estate industry to a period of sustained growth.

Any of the following could halt or limit a recovery in the housing market and have a material adverse effect on our business by causing a lack of sustained growth or a decline in the number of homesales and/or prices which, in turn, could adversely affect our revenues and profitability:

 

   

continued high unemployment;

 

   

a period of slow economic growth or recessionary conditions;

 

   

weak credit markets;

 

   

a low level of consumer confidence in the economy and/or the residential real estate market;

 

   

rising mortgage interest rates;

 

   

instability of financial institutions;

 

   

legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities that provide liquidity to the U.S. housing and mortgage markets;

 

   

increasing mortgage rates and down payment requirements and/or reduced availability of mortgage financing, including but not limited to the potential impact of various provisions of the Dodd-Frank Act or other legislation that may be enacted to reform the U.S. housing finance market, including restrictions imposed on mortgage originators as well as retention levels required to be maintained by sponsors to securitize mortgages;

 

   

excessive or insufficient regional home inventory levels;

 

   

continuing high levels of foreclosure activity including but not limited to the release of homes for sale by financial institutions and the uncertainty surrounding the appropriateness of mortgage servicers’ foreclosure processes;

 

   

adverse changes in local or regional economic conditions;

 

   

the inability or unwillingness of homeowners to enter into homesale transactions due to negative equity in their existing homes;

 

   

a decrease in the affordability of homes;

 

   

our geographic and high-end market concentration relating in particular to our company-owned brokerage operations;

 

   

local, state and federal government regulation that burden residential real estate transactions or ownership;

 

   

shifts in populations away from the markets that we or our franchisees serve;

 

   

individual tax law changes, including potential limits or elimination of the deductibility of certain mortgage interest expense, the application of the alternative minimum tax, real property taxes and employee relocation expenses;

 

   

decreasing home ownership rates, declining demand for real estate and changing social attitudes toward home ownership;

 

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commission pressure from brokers who discount their commissions; and/or

 

   

acts of God, such as hurricanes, earthquakes and other natural disasters that disrupt local or regional real estate markets.

Recently, banks and other lenders have come under investigations for alleged improper support for foreclosure actions. As a result, the foreclosure process in many areas has slowed and may face ongoing disruption. These foreclosure developments could reduce the level of homesales and could, once these homes reemerge on the market, add additional downward pressure on the price of existing homesales.

Our success is largely dependent on the efforts and abilities of the independent sales associates retained by company owned brokerage offices and by our franchisees. The ability of our company owned brokerage offices and our franchisees to retain independent sales associates is generally subject to numerous factors, including the compensation they receive and their perception of brand value. Given our high degree of leverage and negative perceptions in the media relating to our financial condition, neither our company owned brokerage offices or our independent franchisees may be successful in attracting or maintaining independent sales associates. If we or our franchisees fail to attract and retain independent sales associates, our business may be materially adversely affected.

A prolonged decline or lack of sustained growth in the number of homesales and/or prices would adversely affect our revenues and profitability.

Based upon data published by NAR, from 2005 to 2010, annual U.S. existing homesale units declined by 31% and the median homesale price declined by 21%. Our Company’s revenues for the year ended December 31, 2010 compared to the year ended December 31, 2007, on a pro forma combined basis, decreased approximately 32%. A further decline or lack of sustained growth in existing homesales, a continued decline in home prices or a decline in commission rates charged by brokers would further adversely affect our results of operations by reducing the royalties we receive from our franchisees and company owned brokerages, reducing the commissions our company owned brokerage operations earn, reducing the demand for our title and settlement services and reducing the referral fees earned by our relocation services business. For example, for 2010, a 100 basis point (or 1%) decline in either our homesale sides or the average selling price of closed homesale transactions, with all else being equal, would have decreased EBITDA by $2 million for our Real Estate Franchise Services segment and $9 million for our Company Owned Real Estate Brokerage Services segment.

Our company owned brokerage operations are subject to geographic and high-end real estate market risks, which could continue to adversely affect our revenues and profitability.

Our subsidiary, NRT, owns real estate brokerage offices located in and around large metropolitan areas in the U.S. Local and regional economic conditions in these locations could differ materially from prevailing conditions in other parts of the country. NRT has more offices and realizes more of its revenues in California, Florida and the New York metropolitan area than any other regions in the country. For the year ended December 31, 2010, NRT realized approximately 63% of its revenues from California (27%), the New York metropolitan area (26%) and Florida (10%). For the three months ended March 31, 2011, NRT realized approximately 67% of its revenues from California (29%), the New York metropolitan area (26%) and Florida (12%). A further downturn in residential real estate demand or economic conditions in these regions could result in a further decline in NRT’s total gross commission income and have a material adverse effect on us. In addition, given the significant geographic overlap of our title and settlement services business with our company owned brokerage offices, such regional declines affecting our company owned brokerage operations could have an adverse effect on our title and settlement services business as well. A further downturn in residential real estate demand or economic conditions in these states could continue to result in a decline in our overall revenues and have a material adverse effect on us.

NRT has a significant concentration of transactions at the higher end of the U.S. real estate market. A shift in NRT’s mix of property transactions from the high range to lower and middle range homes would adversely affect the average price of NRT’s closed homesales.

 

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Loss or attrition among our senior management or other key employees could adversely affect our financial performance.

Our success is largely dependent on the efforts and abilities of our senior management and other key employees. Our ability to retain our employees is generally subject to numerous factors, including the compensation and benefits we pay, the mix between the fixed and variable compensation we pay our employees and prevailing compensation rates. Given the lengthy and prolonged downturn in the real estate market and the cost-cutting measures we implemented during the downturn, certain of our employees have received, and may in the near term continue to receive, less variable compensation. As such, we may suffer significant attrition among our current key employees. If we were to lose key employees and not promptly fill their positions with comparably qualified individuals, our business may be materially adversely affected.

Tightened mortgage underwriting standards could continue to reduce homebuyers’ ability to access the credit market on reasonable terms.

During the past several years, many lenders have significantly tightened their underwriting standards, and many subprime and other alternative mortgage products are no longer being made available in the marketplace. If these trends continue and mortgage loans continue to be difficult to obtain, including in the jumbo mortgage markets important to our higher value and luxury brands, the ability and willingness of prospective buyers to finance home purchases or to sell their existing homes will be adversely affected, which will adversely affect our operating results.

Adverse developments in general business, economic and political conditions could have a material adverse effect on our financial condition and our results of operations.

Our business and operations and those of our franchisees are sensitive to general business and economic conditions in the U.S. and worldwide. These conditions include short-term and long-term interest rates, inflation, fluctuations in debt and equity capital markets, consumer confidence and the general condition of the U.S. and world economy.

Dramatic declines in the housing market during the past several years, with falling home prices and increasing foreclosures, including disruptions and delays occasioned by recent investigations into alleged improper foreclosure processes, and unemployment, have resulted in significant write-downs of asset values by financial institutions, including government-sponsored entities and major commercial and investment banks as well as repayment and reimbursement arrangements between the originating banks and Fannie Mae and Freddie Mac. These actions, which initially impacted mortgage-backed securities, spread to credit default swaps and other derivative securities and caused many financial institutions to seek additional capital, to merge with larger and stronger institutions and, in some cases, to fail. Reflecting concern about the stability of the financial markets generally and the strength of counterparties, many lenders and institutional investors reduced, and in some cases, ceased to provide funding to borrowers, including other financial institutions. Lack of available credit or lack of confidence in the financial sector could materially and adversely affect our business, financial condition and results of operations.

A host of factors beyond our control could cause fluctuations in these conditions, including the political environment and acts or threats of war or terrorism. Adverse developments in these general business and economic conditions could have a material adverse effect on our financial condition and our results of operations.

Recent U.S. governmental actions to assist in the stabilization and/or recovery of the residential real estate market may not be successful; reform of Freddie Mac and Fannie Mae could have a material impact on our operations.

The U.S. government implemented certain actions during the past several years to assist in a stabilization and/or a recovery of the residential real estate market. These measures have included: (1) the placement of

 

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Fannie Mae and Freddie Mac in conservatorship in September 2008 and the funding of over $130 billion to these entities to backstop shortfalls in their capital requirements; (2) the establishment, and subsequent expansion and extension, of a federal homebuyer tax credit for qualified buyers (that, as extended, required signed contracts on or before April 30, 2010); (3) as part of a broader plan to bring stability to credit markets and stimulate the housing market, the purchase of mortgage-backed securities by the Federal Reserve in an attempt to maintain low mortgage rates (the first phase of which ended on March 31, 2010); (4) the continuation of the 2008 higher loan limits for FHA, Freddie Mac and Fannie Mae loans through September 30, 2011; and (5) the availability of low-cost refinancing through Fannie Mae and Freddie Mac to certain homeowners negatively impacted by falling home prices, encouraging lenders to modify loan terms with borrowers at risk of foreclosure or already in foreclosure. There can be no assurance that these actions or any other governmental action will continue to stabilize the housing market or that any recovery in this market will be sustained as these programs either wind down or expire by their terms.

Moreover, Congress has recently held hearings on the future of Freddie Mac and Fannie Mae and other government sponsored entities or GSEs with a view towards further legislative reform. On February 11, 2011, the Obama administration issued a report to the U.S. Congress outlining proposals to reform the U.S. housing finance market, including, among other things, reform designed to reduce government support for housing finance and the winding down of Freddie Mac and Fannie Mae over a period of years. Numerous pieces of legislation seeking various types of reform for the GSEs have been introduced recently in Congress. Two significant questions that need to be addressed in any such reform are: (1) will banks and other private sources of capital be able to fill homebuyers’ needs as the government seeks to pull back some of the housing mortgage market support and (2) will these other sources of capital be available at rates which are reasonably attractive to potential homebuyers. Legislation, if enacted, which curtails Freddie Mac and/or Fannie Mae’s activities and/or results in the wind down of these entities could increase mortgage costs and could result in more stringent underwriting guidelines imposed by lenders, either of which could materially adverse affect the housing market in general and our operations in particular. Given the current uncertainty with respect to the extent, if any, of such reform, it is difficult to predict either the long-term or short-term impact of government action that may be taken.

The Dodd-Frank Act and other financial reform legislation may, among other things, result in new rules and regulations that may adversely affect the housing industry.

On July 21, 2010, the Dodd-Frank Act was signed into law for the express purpose of regulating the financial services industry and also establishes an independent federal bureau of consumer financial protection to enforce laws involving consumer financial products and services, including mortgage finance. The bureau is empowered with examination and enforcement authority. The Dodd-Frank Act also establishes new standards and practices for mortgage originators, including determining a prospective borrower’s ability to repay their mortgage, removing incentives for higher cost mortgages, prohibiting prepayment penalties for non-qualified mortgages, prohibiting mandatory arbitration clauses, requiring additional disclosures to potential borrowers and restricting the fees that mortgage originators may collect. While we are continuing to evaluate all aspects of the Dodd-Frank Act, such legislation and regulations promulgated pursuant to such legislation as well as other legislation that may be enacted to reform the U.S. housing finance market could materially and adversely affect the mortgage and housing industries, result in heightened federal regulation and oversight of the mortgage and housing industries, increase downpayment requirements, increase mortgage costs and result in increased costs and potential litigation for housing market participants.

Certain provisions of the Dodd-Frank Act may impact the operation and practices of Fannie Mae and Freddie Mac and require sponsors of securitizations to retain a portion of the economic interest in the credit risk associated with the assets securitized by them. Substantial reduction in, or the elimination of, GSE demand for mortgage loans could have a material adverse effect on the mortgage industry and the housing industry in general and these provisions may reduce the availability of mortgages to certain individuals.

 

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Monetary policies of the federal government and its agencies may have a material impact on our operations.

Our business is significantly affected by the monetary policies of the federal government and its agencies. We are particularly affected by the policies of the Federal Reserve Board, which regulates the supply of money and credit in the U.S. The Federal Reserve Board’s policies affect the real estate market through their effect on interest rates as well as the pricing on our interest-earning assets and the cost of our interest-bearing liabilities.

We are affected by any rising interest rate environment. Changes in the Federal Reserve Board’s policies, the interest rate environment and mortgage market are beyond our control, are difficult to predict and could have a material adverse effect on our business, results of operations and financial condition. Additionally, the possibility of the elimination of the mortgage interest deduction could have an adverse effect on the housing market by reducing incentives for buying or refinancing homes and negatively affecting property values.

Competition in the residential real estate and relocation business is intense and may adversely affect our financial performance.

Competition in the residential real estate services business is intense. As a real estate brokerage franchisor, our products are our brand names and the support services we provide to our franchisees. Upon the expiration of a franchise agreement, a franchisee may choose to franchise with one of our competitors or operate as an independent broker. Competitors may offer franchisees whose franchise agreements are expiring similar products and services at rates that are lower than we charge. Our largest national competitors in this industry include The Prudential Real Estate Affiliates, Inc., Real Living (which includes the franchise business that had been conducted by GMAC Real Estate, LLC), RE/MAX and Keller Williams Realty, Inc. Some of these companies may have greater financial resources than we do, including greater marketing and technology budgets, and may be less leveraged. Regional and local franchisors provide additional competitive pressure in certain areas. To remain competitive in the sale of franchises and to retain our existing franchisees, we may have to reduce the fees we charge our franchisees to be competitive with those charged by competitors, which may accelerate if market conditions further deteriorate.

Our company owned brokerage business, like that of our franchisees, is generally in intense competition. We compete with other national independent real estate organizations, including Home Services of America, franchisees of our brands and of other national real estate franchisors, franchisees of local and regional real estate franchisors, regional independent real estate organizations, discount brokerages, and smaller niche companies competing in local areas. Competition is particularly severe in the densely populated metropolitan areas in which we operate. In addition, the real estate brokerage industry has minimal barriers to entry for new participants, including participants pursuing non-traditional methods of marketing real estate, such as Internet-based brokerage or brokers who discount their commissions. Discount brokers have had varying degrees of success and while they have been negatively impacted by the prolonged downturn in the residential housing market, they may increase their market share in the future. Real estate brokers compete for sales and marketing business primarily on the basis of services offered, reputation, personal contacts and brokerage commission. As with our real estate franchise business, a decrease in the average brokerage commission rate may adversely affect our revenues. We also compete for the services of qualified licensed independent sales associates. Some of the firms competing for sales associates use a different model of compensating agents, in which agents are compensated for the revenue generated by other agents that they recruit to those firms. This business model may be appealing to certain agents and hinder our ability to attract and retain those agents. Competition for sales associates could reduce the commission amounts retained by our company after giving effect to the split with independent sales associates and possibly increase the amounts that we spend on marketing. Our average homesale commission rate per side in our Company Owned Real Estate Services segment has declined from 2.62% in 2002 to 2.48% in 2010.

In our relocation services business, we compete primarily with global and regional outsourced relocation service providers. The larger outsourced relocation service providers that we compete with include SIRVA, Inc., Weichert Relocation Resources, Inc. and Prudential Real Estate and Relocation Services, Inc.

 

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The title and settlement services business is highly competitive and fragmented. The number and size of competing companies vary in the different areas in which we conduct business. We compete with other title insurers, title agents and vendor management companies. The title and settlement services business competes with a large, fragmented group of smaller underwriters and agencies as well as national competitors.

Several of our businesses are highly regulated and any failure to comply with such regulations or any changes in such regulations could adversely affect our business.

Several of our businesses are highly regulated. The sale of franchises is regulated by various state laws as well as by the FTC. The FTC requires that franchisors make extensive disclosure to prospective franchisees but does not require registration. A number of states require registration or disclosure in connection with franchise offers and sales. In addition, several states have “franchise relationship laws” or “business opportunity laws” that limit the ability of franchisors to terminate franchise agreements or to withhold consent to the renewal or transfer of these agreements. While we believe that our franchising operations are in compliance with such existing regulations, we cannot predict the effect any existing or future legislation or regulation may have on our business operation or financial condition.

Our real estate brokerage business must comply with the requirements governing the licensing and conduct of real estate brokerage and brokerage-related businesses in the jurisdictions in which we do business. These laws and regulations contain general standards for and prohibitions on the conduct of real estate brokers and sales associates, including those relating to licensing of brokers and sales associates, fiduciary and agency duties, administration of trust funds, collection of commissions, advertising and consumer disclosures. Under state law, our real estate brokers have the duty to supervise and are responsible for the conduct of their brokerage business.

Several of the litigation matters we are involved with allege claims based upon breaches of fiduciary duties by our licensed brokers, violations of state laws relating to business practices or consumer disclosures and with respect to compliance with wage and hour regulations. We cannot predict with certainty the cost of defense or the ultimate outcome of these or other litigation matters filed by or against us, including remedies or awards, and adverse results in any such litigation may harm our business and financial condition.

Our company owned real estate brokerage business, our relocation business, our title and settlement service business and the businesses of our franchisees (excluding commercial brokerage transactions) must comply with RESPA. RESPA and comparable state statutes, among other things, restrict payments which real estate brokers, agents and other settlement service providers may receive for the referral of business to other settlement service providers in connection with the closing of real estate transactions. Such laws may to some extent restrict preferred vendor arrangements involving our franchisees and our company owned brokerage business. RESPA and similar state laws also require timely disclosure of certain relationships or financial interests that a broker has with providers of real estate settlement services.

Our title insurance business also is subject to regulation by insurance and other regulatory authorities in each state in which we provide title insurance. State regulations may impede or impose burdensome conditions on our ability to take actions that we may want to take to enhance our operating results.

There is a risk that we could be adversely affected by current laws, regulations or interpretations or that more restrictive laws, regulations or interpretations will be adopted in the future that could make compliance more difficult or expensive. There is also a risk that a change in current laws could adversely affect our business. For example, the “Bush tax cuts,” which have reduced ordinary income and capital gains rates on federal taxes, were recently extended until the end of 2012, after which these tax cuts are due to expire. There can be no assurance that these tax cuts will be extended or if extended, the extension may apply only to a portion of the tax cuts and/or the extension could be limited in duration. Other potential federal tax legislation includes the elimination or narrowing of mortgage tax deductions. Higher federal income tax rates or further limits on

 

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mortgage tax deductions could negatively impact the purchase and sale of residential homes. We cannot assure you that future legislative or regulatory changes will not adversely affect our business operations.

In April 2007, the FTC and Justice Department issued a report on competition in the real estate brokerage industry and concluded that while the industry had undergone substantial changes in prior years, particularly with the increasing use of the Internet, competition has been hindered as a result of actions taken by some real estate brokers, acting through multiple listing services and NAR, state legislatures, and real estate commissions, and recommend, among other things, that the agencies should continue to monitor the cooperative conduct of private associations of real estate brokers, and bring enforcement actions in appropriate circumstances.

In addition, regulatory authorities have relatively broad discretion to grant, renew and revoke licenses and approvals and to implement regulations. Accordingly, such regulatory authorities could prevent or temporarily suspend us from carrying on some or all of our activities or otherwise penalize us if our financial condition or our practices were found not to comply with the then current regulatory or licensing requirements or any interpretation of such requirements by the regulatory authority. Our failure to comply with any of these requirements or interpretations could limit our ability to renew current franchisees or sign new franchisees or otherwise have a material adverse effect on our operations.

We are also, to a lesser extent, subject to various other rules and regulations such as:

 

   

the Gramm-Leach-Bliley Act which governs the disclosure and safeguarding of consumer financial information;

 

   

various state and federal privacy laws;

 

   

the USA PATRIOT Act;

 

   

restrictions on transactions with persons on the Specially Designated Nationals and Blocked Persons list promulgated by the Office of Foreign Assets Control of the Department of the Treasury;

 

   

federal and state “Do Not Call,” “Do Not Fax,” and “Do Not E-Mail” laws;

 

   

“controlled business” statutes, which impose limitations on affiliations between providers of title and settlement services, on the one hand, and real estate brokers, mortgage lenders and other real estate providers, on the other hand, or similar laws or regulations that would limit or restrict transactions among affiliates in a manner that would limit or restrict collaboration among our businesses;

 

   

the Affiliated Marketing Rule, which prohibits or restricts the sharing of certain consumer credit information among affiliated companies without notice and/or consent of the consumer;

 

   

the Fair Housing Act;

 

   

laws and regulations, including the Foreign Corrupt Practices Act, that can impair significant sanctions on improper payments to foreign officials or agents;

 

   

laws and regulations in jurisdictions outside the United States in which we do business;

 

   

state and federal employment laws and regulations, including any changes that would require classification of independent contractors to employee status, and wage and hour regulations; and

 

   

increases in state, local or federal taxes that could diminish profitability or liquidity.

Our failure to comply with any of the foregoing laws and regulations may subject us to fines, penalties, injunctions and/or potential criminal violations. Any changes to these laws or regulations or any new laws or regulations may make it more difficult for us to operate our business and may have a material adverse effect on our operations.

 

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Seasonal fluctuations in the residential real estate brokerage and relocation businesses could adversely affect our business.

The residential real estate brokerage business is subject to seasonal fluctuations. Historically, real estate brokerage revenues and relocation revenues have been strongest in the second and third quarters of the calendar year (although, due to the expiration of the homebuyer tax credit, the third quarter of 2010 was adversely affected by the acceleration of activity into the first half of 2010). However, many of our expenses, such as rent and personnel, are fixed and cannot be reduced during a seasonal slowdown. As a result, we may be required to borrow in order to fund operations during seasonal slowdowns or at other times. Since the terms of our indebtedness may restrict our ability to incur additional debt, we cannot assure you that we would be able to borrow sufficient amounts. Our inability to finance our funding needs during a seasonal slowdown or at other times would have a material adverse effect on us.

Changes in accounting standards, subjective assumptions and estimates used by management related to complex accounting matters could have an adverse effect on results of operations.

Generally accepted accounting principles in the United States and related accounting pronouncements, implementation guidance and interpretations with regard to a wide range of matters, such as stock-based compensation, asset impairments, valuation reserves, income taxes and fair value accounting, are highly complex and involve many subjective assumptions, estimates and judgments made by management. Changes in these rules or their interpretations or changes in underlying assumptions, estimates or judgments made by management could significantly change our reported results.

We may not have the ability to complete future acquisitions; we may not be successful in developing the Better Homes and Gardens Real Estate brand.

We have pursued an active acquisition strategy as a means of strengthening our businesses and have sought to integrate acquisitions into our operations to achieve economies of scale. Our company owned brokerage business has completed over 350 acquisitions since its formation in 1997 and, in 2004, we acquired the Sotheby’s International Realty® residential brokerage business and entered into an exclusive license agreement for the rights to the Sotheby’s International Realty® trademarks with which we are in the process of building the Sotheby’s International Realty® franchise system. In January 2006, we acquired our title insurance underwriter and certain title agencies. As a result of these and other acquisitions, we have derived a substantial portion of our growth in revenues and net income from acquired businesses. The success of our future acquisition strategy will continue to depend upon our ability to find suitable acquisition candidates on favorable terms and to finance and complete these transactions.

In October 2007, we entered into a long-term agreement to license the Better Homes and Gardens® Real Estate brand from Meredith. We seek to build a new international residential real estate franchise company using the Better Homes and Gardens® Real Estate brand name. The licensing agreement between us and Meredith became operational on July 1, 2008 and is for a 50-year term, with a renewal term for another 50 years at our option. We may not be able to successfully develop the brand in a timely manner or at all. Our inability to complete acquisitions or to successfully develop the Better Homes and Gardens® Real Estate brand would have a material adverse effect on our growth strategy.

We may not realize anticipated benefits from future acquisitions.

Integrating acquired companies involves complex operational and personnel-related challenges. Future acquisitions may present similar challenges and difficulties, including:

 

   

the possible defection of a significant number of employees and independent sales associates;

 

   

increased amortization of intangibles;

 

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the disruption of our respective ongoing businesses;

 

   

possible inconsistencies in standards, controls, procedures and policies;

 

   

failure to maintain important business relationships and contracts;

 

   

unanticipated costs of terminating or relocating facilities and operations;

 

   

unanticipated expenses related to integration; and

 

   

potential unknown liabilities associated with acquired businesses.

A prolonged diversion of management’s attention and any delays or difficulties encountered in connection with the integration of any business that we have acquired or may acquire in the future could prevent us from realizing the anticipated cost savings and revenue growth from our acquisitions.

We may be unable to maintain anticipated cost savings and other benefits from our restructuring activities.

We are committed to various restructuring initiatives targeted at reducing costs and enhancing organizational effectiveness while consolidating existing processes and facilities. We may not be able to achieve or maintain the anticipated cost savings and other benefits from these restructuring initiatives that are described elsewhere in this prospectus. If our cost savings or the benefits are less than our estimates or take longer to implement than we project, the savings or other benefits we projected may not be fully realized.

Our financial results are affected by the operating results of franchisees.

Our real estate franchise services segment receives revenue in the form of royalties, which are based on a percentage of gross commission income earned by our franchisees. Accordingly, the financial results of our real estate franchise services segment are dependent upon the operational and financial success of our franchisees. If industry trends or economic conditions worsen for franchisees, their financial results may worsen and our royalty revenues may decline. In addition, we may have to increase our bad debt and note reserves. We may also have to terminate franchisees more frequently due to non-reporting and non-payment. Further, if franchisees fail to renew their franchise agreements, or if we decide to restructure franchise agreements in order to induce franchisees to renew these agreements, then our royalty revenues may decrease.

Our franchisees and independent sales associates could take actions that could harm our business.

Our franchisees are independent business operators and the sales associates that work with our company owned brokerage operations are independent contractors, and, as such, neither are our employees, and we do not exercise control over their day-to-day operations. Our franchisees may not successfully operate a real estate brokerage business in a manner consistent with our standards, or may not hire and train qualified independent sales associates or employees. If our franchisees and independent sales associates were to provide diminished quality of service to customers, our image and reputation may suffer materially and adversely affect our results of operations.

Additionally, franchisees and independent sales associates may engage or be accused of engaging in unlawful or tortious acts such as, for example, violating the anti-discrimination requirements of the Fair Housing Act. Such acts or the accusation of such acts could harm our and our brands’ image, reputation and goodwill.

Franchisees, as independent business operators, may from time to time disagree with us and our strategies regarding the business or our interpretation of our respective rights and obligations under the franchise agreement. This may lead to disputes with our franchisees and we expect such disputes to occur from time to time in the future as we continue to offer franchises. To the extent we have such disputes, the attention of our management and our franchisees will be diverted, which could have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

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Our relocation business is subject to risks related to acquiring, carrying and reselling real estate.

On January 21, 2010, Cartus acquired a global relocation service provider, Primacy, which is a supplier of relocation services to corporate clients as well as certain U.S. government agencies under “at risk” contracts. At December 31, 2010, Primacy was merged into Cartus. Under “at risk” contracts, our relocation business enters into homesale transactions whereby we acquire the homes being sold by relocating employees and bear the risk of all expenses associated with acquiring, carrying and selling the homes, including potential loss on sale. In “at risk” homesale transactions where the ultimate third party buyer is not under contract at the time we become the owner of the home, we are subject to the market risk that the home we purchase will lose value while we are carrying it as well as the risk that our carrying costs will increase, both of which would increase the costs that we may incur on the home. A significant increase in the number of “at risk” home sale transactions could have a material adverse effect on our relocation business if housing prices continue to fall and we are unable to sell our at-risk homes in a timely manner or at favorable prices.

Clients of our relocation business may terminate their contracts at any time.

Substantially all of our contracts with our relocation clients are terminable at any time at the option of the client. If a client terminates its contract, we will only be compensated for all services performed up to the time of termination and reimbursed for all expenses incurred up to the time of termination. If a significant number of our relocation clients terminate their contracts with us, our results of operations would be materially adversely affected.

Our marketing arrangement with PHH Home Loans may limit our ability to work with other key lenders to grow our business.

Under our Strategic Relationship Agreement relating to PHH Home Loans, we are required to recommend PHH Home Loans as originator of mortgage loans to the independent sales associates, customers and employees of our company owned and operated brokerage offices. This provision may limit our ability to enter into beneficial business relationships with other lenders and mortgage brokers.

We do not control the joint venture PHH Home Loans and PHH as the managing partner of that venture may make decisions that are contrary to our best interests.

Under our Operating Agreement with PHH relating to PHH Home Loans, we own a 49.9% equity interest but do not have control of the operations of the venture. Rather, our joint venture partner, PHH, is the managing partner of the venture and may make decisions with respect to the operation of the venture, which may be contrary to our best interests and may adversely affect our results of operations. In addition, our joint venture may be materially adversely impacted by changes affecting the mortgage industry, including but not limited to regulatory changes, increases in mortgage interest rates and decreases in operating margins.

We may experience significant claims relating to our operations and losses resulting from fraud, defalcation or misconduct.

We issue title insurance policies which provide coverage for real property to mortgage lenders and buyers of real property. When acting as a title agent issuing a policy on behalf of an underwriter, our insurance risk is typically limited to the first $5,000 of claims on any one policy, though our insurance risk is not limited if we are negligent. The title underwriter which we acquired in January 2006 typically underwrites title insurance policies of up to $1.5 million. For policies in excess of $1.5 million, we typically obtain a reinsurance policy from a national underwriter to reinsure the excess amount. To date, our title underwriter has experienced claims losses that are significantly below the industry average; our claims experience could increase in the future, which could negatively impact the profitability of that business. We may also be subject to legal claims arising from the handling of escrow transactions and closings. Our subsidiary, NRT, carries errors and omissions insurance for errors made during the real estate settlement process of $15 million in the aggregate, subject to a deductible of $1

 

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million per occurrence. In addition, we carry an additional errors and omissions insurance policy for Realogy and its subsidiaries for errors made for real estate related services up to $35 million in the aggregate, subject to a deductible of $2.5 million per occurrence. This policy also provides excess coverage to NRT creating an aggregate limit of $50 million, subject to the NRT deductible of $1 million per occurrence. The occurrence of a significant title or escrow claim in excess of our insurance coverage in any given period could have a material adverse effect on our financial condition and results of operations during the period.

Fraud, defalcation and misconduct by employees are also risks inherent in our business. We carry insurance covering the loss or theft of funds of up to $30 million annually in the aggregate, subject to a deductible of $1 million per occurrence. To the extent that any loss or theft of funds substantially exceeds our insurance coverage, our business could be materially adversely affected.

In addition, we rely on the collection and use of personally identifiable information from customers to conduct our business. We disclose our information collection and dissemination practices in a published privacy statement on our websites, which we may modify from time to time. We may be subject to legal claims, government action and damage to our reputation if we act or are perceived to be acting inconsistently with the terms of our privacy statement, customer expectations or the law. Further, we may be subject to claims to the extent individual employees or independent contractors breach or fail to adhere to company policies and practices and such actions jeopardize any personally identifiable information. In addition, concern among potential home buyers or sellers about our privacy practices could keep them from using our services or require us to incur significant expense to alter our business practices or educate them about how we use personally identifiable information.

We could be subject to severe losses if banks do not honor our escrow and trust deposits.

Our company owned brokerage business and our title and settlement services business act as escrow agents for numerous customers. As an escrow agent, we receive money from customers to hold until certain conditions are satisfied. Upon the satisfaction of those conditions, we release the money to the appropriate party. We deposit this money with various banks and while these deposits are not assets of the Company (and therefore excluded from our consolidated balance sheet), we remain contingently liable for the disposition of these deposits. The banks may hold a significant amount of these deposits in excess of the federal deposit insurance limit. If any of our depository banks were to become unable to honor our deposits, customers could seek to hold us responsible for these deposits and, if the customers prevailed in their claims, we could be subject to severe losses. These escrow and trust deposits totaled $208 million at March 31, 2011.

Title insurance regulations limit the ability of our insurance underwriter to pay cash dividends to us.

Our title insurance underwriter is subject to regulations that limit its ability to pay dividends or make loans or advances to us, principally to protect policy holders. Generally, these regulations limit the total amount of dividends and distributions to a certain percentage of the insurance subsidiary’s surplus, or 100% of statutory operating income for the previous calendar year. These restrictions could limit our ability to receive dividends from our insurance underwriter, make acquisitions or otherwise grow our business.

We may be unable to continue to securitize certain of our relocation assets, which may adversely impact our liquidity.

At March 31, 2011, $311 million of securitization obligations were outstanding through special purpose entities monetizing certain assets of our relocation services business under two lending facilities. We have provided a performance guaranty which guarantees the obligations of our Cartus subsidiary and its subsidiaries, as originator and servicer under the Apple Ridge securitization program. The securitization markets have experienced significant disruptions which may have the effect of increasing our cost of funding or reducing our access to these markets in the future. If we are unable to continue to securitize these assets, we may be required to find additional sources of funding which may be on less favorable terms or may not be available at all.

 

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The occurrence of any trigger events under our Apple Ridge securitization facility could cause us to lose funding under that facility and therefore restrict our ability to fund the operation of our U.S. relocation business.

The Apple Ridge securitization facility, which we use to advance funds on behalf of certain U.S. clients of our relocation business in order to facilitate the relocation of their employees, contains terms which if triggered may result in a termination or limitation of new or existing funding under the facility and/or may result in a requirement that all collections on the assets be used to pay down the amounts outstanding under such facility. Some of the terms which could affect the availability of funds under the securitization facility include restrictive covenants and trigger events, including performance triggers linked to the age and quality of the underlying assets, limits on net credit losses incurred, financial reporting requirements, restrictions on mergers and change of control, and cross defaults under the senior secured credit facility, the Unsecured Notes and other material indebtedness. Given the current economic conditions, there is an associated risk relating to compliance with the Apple Ridge securitization performance trigger relating to limits on “net credit losses” (the estimated losses incurred on securitization receivables that have been written off, net of recoveries of such receivables), as net credit losses may not exceed $750 thousand in any one month or $1.5 million in any trailing 12 month period. The Apple Ridge facility has trigger events based on change in control and cross-defaults to material indebtedness. The occurrence of a trigger event under the Apple Ridge securitization facility could restrict our ability to access new or existing funding under this facility and adversely affect the operation of our relocation business.

We are highly dependent on the availability of the asset-backed securities market to finance the operations of our relocation business, and disruptions in this market or any adverse change or delay in our ability to access the market could have a material adverse effect on our financial position, liquidity or results of operations.

Reduced investor demand for asset-backed securities could result in our having to fund our relocation assets until investor demand improves, but our capacity to fund our relocation assets is not unlimited. If we confront a reduction in borrowing capacity under the Apple Ridge facility due to a reduced demand for asset-backed securities, it could require us to reduce the amount of relocation assets we fund and to find alternative sources of funding for working capital needs. Adverse market conditions could also result in increased costs and reduced margins earned in connection with securitization transactions.

If we need to increase the funding available under the Apple Ridge securitization facility, such funding may not be available to us or, if available, on terms acceptable to us. In addition, our Apple Ridge securitization facility matures in April 2012. We could encounter difficulties in renewing this facility and if this source of funding is not available to us for any reason, we could be required to borrow under the revolving credit facility or incur other indebtedness to finance our working capital needs or we could require our clients to fund the home purchases themselves, which could have a material adverse effect on our ability to achieve our business and financial objectives.

Our international operations are subject to risks not generally experienced by our U.S. operations.

Our relocation services business operates worldwide, and to a lesser extent, our real estate franchise services segment has international operations. For the year ended December 31, 2010, revenues from these operations are approximately 2.5% of total revenues. Our international operations are subject to risks not generally experienced by our U.S. operations. The risks involved in our international operations that could result in losses against which we are not insured and therefore affect our profitability include:

 

   

fluctuations in foreign currency exchange rates;

 

   

exposure to local economic conditions and local laws and regulations, including those relating to our employees;

 

   

economic and/or credit conditions abroad;

 

   

potential adverse changes in the political stability of foreign countries or in their diplomatic relations with the U.S.;

 

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restrictions on the withdrawal of foreign investment and earnings;

 

   

government policies against businesses owned by foreigners;

 

   

investment restrictions or requirements;

 

   

diminished ability to legally enforce our contractual rights in foreign countries;

 

   

difficulties in registering, protecting or preserving trade names and trademarks in foreign countries;

 

   

restrictions on the ability to obtain or retain licenses required for operation;

 

   

foreign exchange restrictions;

 

   

withholding and other taxes on remittances and other payments by subsidiaries; and

 

   

changes in foreign taxation structures.

We are subject to certain risks related to litigation filed by or against us, and adverse results may harm our business and financial condition.

We cannot predict with certainty the cost of defense, the cost of prosecution, insurance coverage or the ultimate outcome of litigation and other proceedings filed by or against us, including remedies or damage awards, and adverse results in such litigation and other proceedings may harm our business and financial condition. Such litigation and other proceedings may include, but are not limited to, actions relating to intellectual property, commercial arrangements, franchising arrangements, actions against our title company alleging it knew or should have known that others were committing mortgage fraud, standard brokerage disputes like the failure to disclose hidden defects in the property such as mold, vicarious liability based upon conduct of individuals or entities outside of our control, including franchisees and independent sales associates, antitrust claims, general fraud claims, and employment law, including claims challenging the classification of our sales associates as independent contractors. In the case of intellectual property litigation and proceedings, adverse outcomes could include the cancellation, invalidation or other loss of material intellectual property rights used in our business and injunctions prohibiting our use of business processes or technology that is subject to third party patents or other third party intellectual property rights. In addition, we may be required to enter into licensing agreements (if available on acceptable terms or at all) and pay royalties.

In 2002, Frank K. Cooper Real Estate #1, Inc. filed a putative class action (the “Cooper Litigation”) against Cendant and Cendant’s subsidiary, Century 21 Real Estate Corporation (“Century 21”). The complaint alleges breach of certain provisions of the Real Estate Franchise Agreement entered into between Century 21 and the plaintiffs, breach of the implied duty of good faith and fair dealing, violation of the New Jersey Consumer Fraud Act and breach of certain express and implied fiduciary duties. The complaint alleges, among other things, that Cendant diverted money and resources from Century 21 franchisees and allotted them to NRT owned brokerages and otherwise improperly charged expenses to advertising funds. The complaint seeks unspecified compensatory and punitive damages, injunctive relief, interest, attorney’s fees and costs. The New Jersey Consumer Fraud Act, if applicable, provides for treble damages, attorney’s fees and costs as remedies for violation of the Act. On August 17, 2010, the court granted plaintiffs’ renewed motion to certify a class. The certified class includes Century 21 franchisees at any time between August 1, 1995 and April 17, 2002 whose franchise agreements contain New Jersey choice of law and venue provisions and who have not executed releases releasing the claim (unless the release was a provision of a franchise renewal agreement).

A case management order was entered on November 29, 2010 that includes, among other deadlines, a trial date of April 16, 2012. On December 20, 2010, the court held a status conference to address plaintiffs’ motion regarding notice to be issued to the class, the language of the notice, publication of the notice and how class members can opt out of the class. As directed by a court order, Century 21 has delivered to plaintiffs’ counsel and Rust Consulting, Inc. (the “Notice Administrator”) lists of the names and contact information for (1) franchisees that meet the class definition and (2) franchisees that would have met the class definition but for

 

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the fact that they signed a waiver of claims against Century 21. Pursuant to the court order, the Notice Administrator has advised us that the notice of pendency of the action was mailed to possible class members on March 4, 2011, and a summary of that notice has been published in various print and online media. Following many months of effort directed at class identification, the case has now moved to very active discovery on the merits. Motions are also pending seeking to enjoin certain Century 21 contractual practices associated with amendments or financial settlements that result in franchisees signing waivers of claims asserted on their behalf as class members in the Cooper Litigation. This class action involves substantial, complex litigation. Class action litigation is inherently unpredictable and subject to significant uncertainties. The resolution of the Cooper Litigation could result in substantial losses and there can be no assurance that such resolution will not have a material adverse effect on our results of operations, financial condition or liquidity.

We are reliant upon information technology to operate our business and maintain our competitiveness, and any disruption or reduction in our information technology capabilities could harm our business.

Our business depends upon the use of sophisticated information technologies and systems, including technology and systems utilized for communications, records of transactions, procurement, call center operations and administrative systems. The operation of these technologies and systems is dependent upon third party technologies, systems and services, for which there are no assurances of continued or uninterrupted availability and support by the applicable third party vendors on commercially reasonable terms. We also cannot assure you that we will be able to continue to effectively operate and maintain our information technologies and systems. In addition, our information technologies and systems are expected to require refinements and enhancements on an ongoing basis, and we expect that advanced new technologies and systems will continue to be introduced. We may not be able to obtain such new technologies and systems, or to replace or introduce new technologies and systems as quickly as our competitors or in a cost-effective manner. Also, we may not achieve the benefits anticipated or required from any new technology or system, and we may not be able to devote financial resources to new technologies and systems in the future.

In addition, our information technologies and systems are vulnerable to damage or interruption from various causes, including (1) natural disasters, war and acts of terrorism, (2) power losses, computer systems failure, Internet and telecommunications or data network failures, operator error, losses and corruption of data, and similar events and (3) computer viruses, penetration by individuals seeking to disrupt operations or misappropriate information and other physical or electronic breaches of security. We maintain certain disaster recovery capabilities for critical functions in most of our businesses, including certain disaster recovery services from International Business Machines Corporation. However, these capabilities may not successfully prevent a disruption to or material adverse effect on our businesses or operations in the event of a disaster or other business interruption. Any extended interruption in our technologies or systems could significantly curtail our ability to conduct our business and generate revenue. Additionally, our business interruption insurance may be insufficient to compensate us for losses that may occur.

We do not own two of our brands and must manage cooperative relationships with both owners.

The Sotheby’s International Realty® and Better Homes and Gardens® real estate brands are owned by the companies that founded these brands. We are the exclusive party licensed to run brokerage services in residential real estate under those brands, whether through our franchisees or our company owned operations. Our future operations and performance with respect to these brands requires the continued cooperation from the owners of those brands. In particular, Sotheby’s has the right to approve the master franchisors of, and the material terms of our master franchise agreements governing our relationships with, our Sotheby’s franchisees located outside the U.S., which approval cannot be unreasonably withheld or delayed. If Sotheby’s unreasonably withholds or delays its approval for new international master franchisors, our relationship with them could be disrupted. Any significant disruption of the relationships with the owners of these brands could impede our franchising of those brands and have a material adverse effect on our operations and performance.

 

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The weakening or unavailability of our intellectual property rights could adversely impact our business.

Our trademarks, trade names, domain names, trade dress and other intellectual property rights are fundamental to our brands and our franchising business. The steps we take to obtain, maintain and protect our intellectual property rights may not be adequate and, in particular, we may not own all necessary registrations for our intellectual property. Applications we have filed to register our intellectual property may not be approved by the appropriate regulatory authorities. Our intellectual property rights may not be successfully asserted in the future or may be invalidated, circumvented or challenged. We may be unable to prevent third parties from using our intellectual property rights without our authorization or independently developing technology that is similar to ours. Also third parties may own rights in similar trademarks. Any unauthorized use of our intellectual property by third parties could reduce any competitive advantage we have developed or otherwise harm our business and brands. If we had to litigate to protect these rights, any proceedings could be costly, and we may not prevail. Our intellectual property rights, including our trademarks, may fail to provide us with significant competitive advantages in the U.S. and in foreign jurisdictions that do not have or do not enforce strong intellectual property rights.

We cannot be certain that our intellectual property does not and will not infringe issued intellectual property rights of others. We may be subject to legal proceedings and claims in the ordinary course of our business, including claims of alleged infringement of the patents, trademarks and other intellectual property rights of third parties. Any such claims, whether or not meritorious, could result in costly litigation. Depending on the success of these proceedings, we may be required to enter into licensing or consent agreements (if available on acceptable terms or at all), or to pay damages or cease using certain service marks or trademarks.

We franchise our brands to franchisees. While we try to ensure that the quality of our brands is maintained by all of our franchisees, we cannot assure that these franchisees will not take actions that hurt the value of our intellectual property or our reputation.

Our license agreement with Sotheby’s for the use of the Sotheby’s International Realty® brand is terminable by Sotheby’s prior to the end of the license term if certain conditions occur, including but not limited to the following: (1) we attempt to assign any of our rights under the license agreement in any manner not permitted under the license agreement, (2) we become bankrupt or insolvent, (3) a court issues a non-appealable, final judgment that we have committed certain breaches of the license agreement and we fail to cure such breaches within 60 days of the issuance of such judgment, or (4) we discontinue the use of all of the trademarks licensed under the license agreement for a period of twelve consecutive months.

Our license agreement with Meredith for the use of the Better Homes and Gardens® real estate brand is terminable by Meredith prior to the end of the license term if certain conditions occur, including but not limited to the following: (i) we attempt to assign any of our rights under the license agreement in any manner not permitted under the license agreement, (ii) we become bankrupt or insolvent, or (iii) a trial court issues a final judgment that we are in material breach of the license agreement or any representation or warranty we made was false or materially misleading when made.

Our ability to use our NOLs and other tax attributes may be limited if we undergo an “ownership change.”

Our ability to utilize our net operating losses (“NOLs”) and other tax attributes could be limited if we undergo an “ownership change” within the meaning of Section 382 of the Internal Revenue Code of 1986, as amended (the “Code”). An ownership change is generally defined as a greater than 50 percentage point increase in equity ownership by five-percent stockholders in any three-year period.

Although we do not believe that we have undergone an ownership change within the last three years, it is possible that we will undergo an ownership change in the future and, as a result, our use of NOL carryforwards may be limited.

 

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Risks Related to Realogy’s Separation from Cendant

We are responsible for certain of Cendant’s contingent and other corporate liabilities.

Under the Separation and Distribution Agreement dated July 27, 2006 (the “Separation and Distribution Agreement”) among Realogy, Cendant Corporation (“Cendant”), which changed its name to Avis Budget Group, Inc. (“Avis Budget”) in August 2006, Wyndham Worldwide Corporation (“Wyndham Worldwide”) and Travelport Inc. (“Travelport”), and other agreements, subject to certain exceptions contained in the Tax Sharing Agreement dated as of July 28, 2006, as amended, among Realogy, Wyndham Worldwide and Travelport, Realogy and Wyndham Worldwide have each assumed and are generally responsible for 62.5% and 37.5%, respectively, of certain of Cendant’s contingent and other corporate liabilities not primarily related to the businesses of Travelport, Realogy, Wyndham Worldwide or Avis Budget Group. The due to former parent balance was $98 million at March 31, 2011 and represents Realogy’s accrual of its share of potential Cendant contingent and other corporate liabilities.

If any party responsible for Cendant contingent and other corporate liabilities were to default in its payment, when due, of any such assumed obligations related to any such contingent and other corporate liability, each non-defaulting party (including Cendant) would be required to pay an equal portion of the amounts in default. Accordingly, Realogy may, under certain circumstances, be obligated to pay amounts in excess of its share of the assumed obligations related to such contingent and other corporate liabilities, including associated costs and expenses.

Adverse outcomes from the unresolved Cendant liabilities for which Realogy has assumed partial liability under the Separation and Distribution Agreement could be material with respect to our earnings or cash flows in any given reporting period.

 

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FORWARD-LOOKING STATEMENTS

Forward-looking statements in this prospectus or other public statements are subject to known and unknown risks, uncertainties and other factors that 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 or other public statements. These forward-looking statements were based on various facts and were derived utilizing numerous important assumptions and other important factors, and changes in such facts, assumptions or factors could cause actual results to differ materially from those in the forward-looking statements. Forward-looking statements include the information concerning our future financial performance, business strategy, projected plans and objectives, as well as projections of macroeconomic trends, which are inherently unreliable due to the multiple factors that impact economic trends, and any such variations may be material. Statements preceded by, followed by or that otherwise include the words “believes,” “expects,” “anticipates,” “intends,” “projects,” “estimates,” “plans,” 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. You should understand that the following important factors could affect our future results and cause actual results to differ materially from those expressed in the forward-looking statements:

 

   

our substantial leverage as a result of Realogy’s April 2007 acquisition by affiliates of Apollo and the related financings (the “Merger Transactions”). Since 2007, we have needed to incur additional debt in order to fund negative cash flows. As of March 31, 2011, our total debt (excluding the securitization obligations) was $6,973 million. The industry and economy have experienced significant declines since the time of the Merger Transactions that have negatively impacted our operating results. As a result, we have been, and continue to be, challenged by our heavily leveraged capital structure;

 

   

under the senior secured credit facility, our senior secured leverage ratio of total senior secured net debt to trailing 12-month EBITDA, as those terms are defined in the senior secured credit facility, calculated on a “pro forma” basis pursuant to the senior secured credit facility, may not exceed 4.75 to 1 on the last day of each fiscal quarter. For the twelve months ended March 31, 2011, we were in compliance with the senior secured leverage ratio covenant with a ratio of 3.83 to 1.0. While the housing market has shown signs of stabilization, there remains substantial uncertainty with respect to the timing and scope of a housing recovery and if a housing recovery is delayed or is weak, we may be subject to additional pressure in maintaining compliance with our senior secured leverage ratio;

 

   

if we experience an event of default under the senior secured credit facility, including but not limited to a failure to maintain, or a failure to cure a default of, the applicable senior secured leverage ratio under such facility, or under our indentures or relocation securitization facilities or a failure to meet our cash interest obligations under these instruments or other lack of liquidity caused by substantial leverage and the adverse conditions in the housing market, such an event would materially and adversely affect our financial condition, results of operations and business;

 

   

adverse developments or the absence of sustained improvement in general business, economic, employment and political conditions;

 

   

adverse developments or the absence of improvement in the U.S. residential real estate markets, either regionally or nationally, including but not limited to:

 

   

a lack of sustained improvement in the number of homesales, further declines in home prices and/or a deterioration in other economic factors that particularly impact the residential real estate market and the business segments in which we operate;

 

   

a lack of improvement in consumer confidence;

 

   

the impact of ongoing or future recessions, slow economic growth and high levels of unemployment in the U.S. and abroad;

 

   

increasing mortgage rates and down payment requirements and/or reduced availability of mortgage financing, including but not limited to the potential impact of various provisions of the

 

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Dodd-Frank Act and regulations which may be promulgated thereunder relating to mortgage financing, including restrictions imposed on mortgage originators as well as retention levels required to be maintained by sponsors to securitize mortgages;

 

   

legislative, tax or regulatory changes that would adversely impact the residential real estate market, including but not limited to potential reform relating to Fannie Mae, Freddie Mac and other government sponsored entities that provide liquidity to the U.S. housing and mortgage markets;

 

   

negative trends and/or a negative perception of the market trends in value for residential real estate;

 

   

continuing high levels of foreclosure activity including but not limited to the release of homes for sale by financial institutions;

 

   

any impact of the April 2011 orders issued by U.S. regulators to 14 financial institutions requiring tighter processes and controls relating to foreclosures as well as any future related actions taken by Federal and state regulators;

 

   

excessive or insufficient regional home inventory levels;

 

   

the inability or unwillingness of homeowners to enter into homesale transactions due to negative equity in their existing homes;

 

   

lower homeownership rates due to various factors, including, but not limited to, high unemployment levels, reduced demand or preferred use by households of rental housing due in part to uncertainty regarding future home values;

 

   

our geographic and high-end market concentration relating in particular to our company-owned brokerage operations; and

 

   

local and regional conditions in the areas where our franchisees and brokerage operations are located;

 

   

the impact an increase in interest rates would have on certain of our borrowings that have variable interest and the related increase in our debt service costs that would result therefrom;

 

   

limitations on flexibility in operating our business due to restrictions contained in our debt agreements;

 

   

our inability to sustain the improvements we have realized during the past several years in our operating efficiency through cost savings and business optimization efforts;

 

   

our inability to access capital and/or to securitize certain assets of our relocation business, either of which would require us to find alternative sources of liquidity, which may not be available, or if available, may not be on favorable terms;

 

   

any remaining resolutions or outcomes with respect to Cendant’s contingent and corporate tax liabilities under the Separation and Distribution Agreement and the Tax Sharing Agreement, including any adverse impact on our future cash flows;

 

   

competition in our existing and future lines of business, including, but not limited to, higher costs to retain or attract sales agents for residential real estate brokerages, and the financial resources of competitors;

 

   

our failure to comply with laws and regulations and any changes in laws and regulations;

 

   

adverse effects of natural disasters or environmental catastrophes;

 

   

our failure to enter into or renew franchise agreements, maintain franchisee satisfaction with our brands or the inability of franchisees to survive the ongoing challenges of the real estate market;

 

   

disputes or issues with entities that license us their trade names for use in our business that could impede our franchising of those brands;

 

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actions by our franchisees that could harm our business or reputation, non-performance of our franchisees or controversies with our franchisees;

 

   

the loss of any of our senior management or key managers or employees;

 

   

the cumulative effect of adverse litigation, governmental proceedings or arbitration awards against us and the adverse effect of new regulatory interpretations, rules and laws, including any changes that would (1) require classification of independent contractors to employee status, (2) place additional limitations or restrictions on affiliated transactions, which would have the effect of limiting or restricting collaboration among our business units, (3) interpret the Real Estate Settlement Procedures Act (“RESPA”) in a manner that would adversely affect our operations and business arrangements, or (4) require significant changes in the manner in which we support our franchisees; and

 

   

new types of taxes or increases in state, local or federal taxes that could diminish profitability or liquidity.

Other factors not identified above, including those described under the headings “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” may also cause actual results to differ materially from those described in our forward-looking statements. Most of these factors are difficult to anticipate and are generally beyond our control. You should consider these factors in connection with considering 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 revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events unless we are required to do so by law. For any forward-looking statements contained in our public filings or other public statements, we claim the protection of the safe harbor for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995.

 

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THE EXCHANGE OFFERS

Purpose and Effect of the Exchange Offers

In connection with the Debt Exchange Offering, Realogy, Holdings and the Note Guarantors entered into the Registration Rights Agreements with respect to each series of Old Notes with the Dealer Managers. Under the Registration Rights Agreements, Realogy agreed to file with the SEC and cause to become effective a registration statement, of which this prospectus forms a part, on the appropriate form under the Securities Act, relating to the Exchange Offers on or prior to July 29, 2011.

The Registration Statement of which this prospectus forms a part was filed in compliance with the obligations under the Registration Rights Agreements. The New Notes will have terms substantially identical to the Old Notes except that the New Notes will not be subject to restrictions on transfer or to any increase in interest rate as described below.

In certain circumstances, Realogy is obligated to file and cause the SEC to declare effective a shelf registration statement with respect to the resale of the Old Notes and to keep the shelf registration statement effective up to two years after the effective date of the shelf registration statement (or such shorter period that will terminate when all Old Notes covered by such shelf registration statement have been sold). These circumstances include:

 

   

if the Exchange Offers are not permitted by applicable law or SEC policy;

 

   

if the Exchange Offers are not consummated within 30 business days after notice of the Exchange Offers is required to be mailed to holders of Old Notes; and

 

   

prior to the 20th day following consummation of the Exchange Offers, upon the request of any holder of Old Notes that (A) is prohibited by applicable law or SEC policy from participating in the Exchange Offers, or (B) may not resell the New Notes acquired in the Exchange Offers without delivering a prospectus, and this prospectus is not appropriate or available for such resales by such holder, or (C) is a broker-dealer that holds Old Notes acquired directly from Realogy or one of its affiliates.

Each holder of Old Notes that wishes to exchange such Old Notes for transferable New Notes in the Exchange Offers will be required to make the following representations:

 

   

that it is not our “affiliate,” as defined in Rule 144 under the Securities Act;

 

   

that it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the New Notes to be issued in the Exchange Offers; and

 

   

that it is acquiring the New Notes in its ordinary course of business.

Resale of New Notes

Based on interpretations by the Staff set forth in no-action letters issued to third parties, we believe that the New Notes issued pursuant to the Exchange Offers in exchange for the Old Notes may be offered for resale, resold and otherwise transferred by any holder of New Notes (unless you are our “affiliate” within the meaning of Rule 405 under the Securities Act) without compliance with the registration provisions of the Securities Act, provided that:

 

   

such holder is not an “affiliate” of ours within the meaning of Rule 144 under the Securities Act;

 

   

such holder is acquiring the New Notes in its ordinary course of business; and

 

   

such holder is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any other person to participate in, a distribution of such New Notes.

 

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Any holder of Old Notes who is our affiliate; does not acquire the New Notes in the ordinary course of business; or tenders in the Exchange Offers with the intention to participate or with the purpose of participating in a distribution of the New Notes:

 

   

cannot rely on the position of the Staff expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co. Incorporated or similar no-action letters; and

 

   

in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes.

This prospectus may be used for an offer to resell, for the resale or for other retransfer of New Notes only as specifically set forth in this prospectus. With regard to broker-dealers, only broker-dealers that acquired the Old Notes as a result of market-making activities or other trading activities may participate in the Exchange Offers. Each broker-dealer that receives New Notes for its own account in exchange for Old Notes, where such Old Notes were acquired by such broker-dealer as a result of market-making activities or other trading activities, must acknowledge that it will deliver a prospectus in connection with any resale of the New Notes. The New Notes may not be sold under state securities laws unless the New Notes have been registered or qualified for sale in the applicable state or an exemption from registration or qualification requirement is available. Except as required by the applicable Registration Rights Agreement, we do not intend to register resales of the Old Notes under the Securities Act. See “Plan of Distribution” for more details regarding these procedures for the transfer of New Notes.

Terms of the Exchange Offers

Upon the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal, we will accept for exchange any Old Notes properly tendered and not withdrawn prior to the Expiration Date. Realogy will issue a like principal amount of New Notes in exchange for the principal amount of Old Notes surrendered under the Exchange Offers.

The form and terms of the New Notes are substantially identical to the form and terms of the Old Notes, except the New Notes will be registered under the Securities Act, will not bear legends restricting their transfer and will be freely tradeable by persons not affiliated with us. The New Notes will evidence the same debt as the Old Notes. The New Notes will be issued under and entitled to the benefits of the indentures that authorized the issuance of the applicable series of Old Notes.

The Exchange Offers are not conditioned upon any minimum aggregate principal amount of Old Notes being tendered for exchange.

As of the date of this prospectus, $491.8 million aggregate principal amount of the Old 11.50% Senior Notes, $129.6 million aggregate principal amount of the Old 12.00% Senior Notes and $10.3 million aggregate principal amount of the Old 13.375% Senior Subordinated Notes are outstanding. This prospectus and the letter of transmittal are being sent to all registered holders of Old Notes. There will be no fixed record date for determining registered holders of Old Notes entitled to participate in the Exchange Offers.

Realogy intends to conduct the Exchange Offers in accordance with the provisions of the Registration Rights Agreements, the applicable requirements of the Securities Act and the Exchange Act and the rules and regulations of the SEC. Old Notes that are not tendered for exchange in the Exchange Offers will remain outstanding and continue to accrue interest and will be entitled to the rights and benefits such holders have under the indenture relating to the applicable series of Old Notes.

Realogy will be deemed to have accepted for exchange properly tendered Old Notes when it has given oral or written notice of the acceptance to the Exchange Agent. The Exchange Agent will act as agent for the tendering holders for the purposes of receiving the New Notes from Realogy and delivering New Notes to such holders.

 

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Subject to the terms of the Registration Rights Agreements, Realogy expressly reserves the right to amend or terminate the Exchange Offers, and not to accept for exchange any Old Notes not previously accepted for exchange, upon the occurrence of any of the conditions specified below under the caption “—Certain Conditions to the Exchange Offers.”

Holders who tender Old Notes in the Exchange Offers will not be required to pay brokerage commissions or fees, or, subject to the instructions in the letter of transmittal, transfer taxes with respect to the exchange of Old Notes. Realogy will pay all charges and expenses, other than those transfer taxes described below, in connection with the Exchange Offers. It is important that you read the section labeled “—Fees and Expenses” below for more details regarding fees and expenses incurred in the Exchange Offers.

Expiration Date; Extensions; Amendments

The Exchange Offers will expire at 5:00 p.m., New York City time on June 20, 2011, unless in Realogy’s sole discretion, Realogy extends it. The New Notes issued pursuant to the Exchange Offers will be delivered promptly following the Expiration Date to the holders who validly tender their Old Notes.

In order to extend the Exchange Offers, Realogy will notify the Exchange Agent orally or in writing of any extension. Realogy will notify in writing or by public announcement the registered holders of Old Notes of the extension no later than 9:00 a.m., New York City time, on the business day after the previously scheduled Expiration Date.

Realogy reserves the right, in its sole discretion:

 

   

to delay accepting for exchange any Old Notes, to extend the Exchange Offers or to terminate the Exchange Offers and to refuse to accept Old Notes not previously accepted if any of the conditions set forth below under “—Certain Conditions to the Exchange Offers” have not been satisfied, by giving oral or written notice of such delay, extension or termination to the Exchange Agent; or

 

   

subject to the terms of the Registration Rights Agreements, to amend the terms of the Exchange Offers in any manner.

Any such delay in acceptance, extension, termination or amendment will be followed as promptly as practicable by oral or written notice or public announcement thereof to the registered holders of Old Notes. If Realogy amends the Exchange Offers in a manner that Realogy determines to constitute a material change, including the waiver of a material condition, Realogy will promptly disclose such amendment in a manner reasonably calculated to inform the holders of Old Notes of such amendment and will extend the Exchange Offers to the extent required by law, if necessary. Generally Realogy must keep the Exchange Offers open for at least five business days after a material change. Pursuant to Rule 14e-1(b) under the Exchange Act, if Realogy increases or decreases the percentage of Old Notes being sought, Realogy will extend the Exchange Offers for at least ten business days from the date that notice of such increase or decrease is first published, sent or given by us to holders of the Old Notes. Realogy currently does not intend to decrease the percentage of Old Notes being sought.

Without limiting the manner in which Realogy may choose to make public announcements of any delay in acceptance, extension, termination or amendment of the Exchange Offers, Realogy shall have no obligation to publish, advertise, or otherwise communicate any such public announcement, other than by issuing a timely press release to a financial news service.

Certain Conditions to the Exchange Offers

Despite any other term of the Exchange Offers, Realogy will not be required to accept for exchange, or exchange any New Notes for, any Old Notes, and Realogy may terminate the Exchange Offers as provided in this prospectus before accepting any Old Notes for exchange if in its reasonable judgment:

 

   

the New Notes to be received will not be tradable by the holder without restriction under the Securities Act or the Exchange Act and without material restrictions under the blue sky or securities laws of substantially all of the states of the United States;

 

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the Exchange Offers, or the making of any exchange by a holder of Old Notes, would violate applicable law or any applicable interpretation of the Staff; or

 

   

any action or proceeding has been instituted or threatened in any court or by or before any governmental agency with respect to the Exchange Offers that, in Realogy’s judgment, would reasonably be expected to impair its ability to proceed with the Exchange Offers.

In addition, Realogy will not be obligated to accept for exchange the Old Notes of any holder that prior to the expiration of the Exchange Offers has not made:

 

   

the representations described under “—Purpose and Effect of the Exchange Offers,” “—Procedures for Tendering” and “Plan of Distribution,” and

 

   

such other representations as may be reasonably necessary under applicable SEC rules, regulations or interpretations to make available to Realogy an appropriate form for registration of the New Notes under the Securities Act.

Realogy expressly reserves the right, at any time or at various times on or prior to the scheduled Expiration Date of the Exchange Offers, to extend the period of time during which the Exchange Offers are open. Consequently, Realogy may delay acceptance of any Old Notes by giving oral or written notice of such extension of the Expiration Date to the registered holders of the Old Notes in accordance with the notice procedures described in the following paragraph. During any such extensions, all Old Notes previously tendered will remain subject to the Exchange Offers, and Realogy may accept them for exchange unless they have been previously withdrawn. Realogy will return any Old Notes that it does not accept for exchange for any reason without expense to their tendering holder promptly after the expiration or termination of the Exchange Offers.

Realogy expressly reserve the right to amend or terminate the Exchange Offers on or prior to the scheduled Expiration Date of the Exchange Offers, and to reject for exchange any Old Notes not previously accepted for exchange, upon the occurrence of any of the conditions of the Exchange Offers specified above. Realogy will give oral or written notice or public announcement of any extension, amendment, non-acceptance or termination to the registered holders of the Old Notes as promptly as practicable. In the case of any extension, such notice will be issued no later than 9:00 a.m., New York City time, on the business day after the previously scheduled Expiration Date.

These conditions are for Realogy’s sole benefit and it may, in its sole discretion, assert them regardless of the circumstances that may give rise to them or waive them in whole or in part at any time or at various times except that all conditions to the Exchange Offers, other than those described in the first sentence of this section, must be satisfied or waived by Realogy at or before the expiration of the Exchange Offers. If Realogy waives any of these conditions to the Exchange Offers, Realogy expects that such waiver will apply equally to all holders of the Old Notes tendered in the Exchange Offers. If Realogy fails to exercise any of the foregoing rights, that failure in itself will not constitute a waiver of such right. Each such right will be deemed an ongoing right that Realogy may assert at any time or at various times except that all conditions to the Exchange Offers, other than those described in the first sentence of this section, must be satisfied or waived by Realogy at or before the expiration of the Exchange Offers. There are no dissenters’ rights of appraisal under Delaware law applicable to the Exchange Offers.

In addition, Realogy will not accept for exchange any Old Notes tendered, and will not issue New Notes in exchange for any such Old Notes, if at such time any stop order will be threatened or in effect with respect to the Registration Statement, of which this prospectus forms a part, or the qualification of the New Notes Indentures under the Trust Indenture Act of 1939.

 

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Procedures for Tendering

Only a holder of Old Notes may tender such Old Notes in the Exchange Offers. To tender in the Exchange Offers, a holder must:

 

   

complete, sign and date the letter of transmittal, or a facsimile of the letter of transmittal; have the signature on the letter of transmittal guaranteed if the letter of transmittal so requires; and mail or deliver such letter of transmittal or facsimile to the Exchange Agent prior to the Expiration Date; or

 

   

comply with DTC’s Automated Tender Offer Program procedures described below.

In addition, either:

 

   

the Exchange Agent must receive Old Notes along with the letter of transmittal; or

 

   

the Exchange Agent must receive, prior to the Expiration Date, a timely confirmation of book-entry transfer of such Old Notes into the Exchange Agent’s account at DTC according to the procedures for book-entry transfer described below or a properly transmitted agent’s message.

To be tendered effectively, the Exchange Agent must receive any physical delivery of the letter of transmittal and other required documents at the address set forth below under “—Exchange Agent” prior to the Expiration Date.

The tender by a holder of Old Notes that is not withdrawn prior to the Expiration Date will constitute an agreement between such holder and Realogy in accordance with the terms and subject to the conditions set forth in this prospectus and in the letter of transmittal.

The method of delivery of Old Notes, the letter of transmittal and all other required documents to the Exchange Agent is at the holder’s election and risk. Rather than mail these items, Realogy recommends that holders use an overnight or hand delivery service. In all cases, holders should allow sufficient time to assure delivery to the Exchange Agent before the Expiration Date. Holders should not send Realogy the letter of transmittal or Old Notes. Holders may request their respective brokers, dealers, commercial banks, trust companies or other nominees to effect the above transactions for them.

Any beneficial owner whose Old Notes are registered in the name of a broker, dealer, commercial bank, trust company or other nominee and who wishes to tender should contact the registered holder promptly and instruct it to tender on the owners’ behalf. If such beneficial owner wishes to tender on its own behalf, it must, prior to completing and executing the letter of transmittal and delivering its Old Notes, either:

 

   

make appropriate arrangements to register ownership of the Old Notes in such owner’s name; or

 

   

obtain a properly completed bond power from the registered holder of Old Notes.

The transfer of registered ownership may take considerable time and may not be completed prior to the Expiration Date.

Signatures on a letter of transmittal or a notice of withdrawal described below must be guaranteed by a member firm of a registered national securities exchange or of the National Association of Securities Dealers, Inc., a commercial bank or trust company having an office or correspondent in the United States or another “eligible institution” within the meaning of Rule 17Ad-15 under the Exchange Act, unless the Old Notes tendered pursuant thereto are tendered:

 

   

by a registered holder who has not completed the box entitled “Special Issuance Instructions” or “Special Delivery Instructions” on the letter of transmittal; or

 

   

for the account of an eligible institution.

 

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If the letter of transmittal is signed by a person other than the registered holder of any Old Notes, such Old Notes must be endorsed or accompanied by a properly completed bond power. The bond power must be signed by the registered holder as the registered holder’s name appears on the Old Notes and an eligible institution must guarantee the signature on the bond power.

If the letter of transmittal or any Old Notes or bond powers are signed by trustees, executors, administrators, guardians, attorneys-in-fact, officers of corporations or others acting in a fiduciary or representative capacity, such persons should so indicate when signing. Unless waived by Realogy, they should also submit evidence satisfactory to Realogy of their authority to deliver the letter of transmittal.

The Exchange Agent and DTC have confirmed that any financial institution that is a participant in DTC’s system may use DTC’s Automated Tender Offer program to tender. Participants in the program may, instead of physically completing and signing the letter of transmittal and delivering it to the Exchange Agent, transmit their acceptance of the Exchange Offers electronically. They may do so by causing DTC to transfer the Old Notes to the Exchange Agent in accordance with its procedures for transfer. DTC will then send an agent’s message to the Exchange Agent. The term “agent’s message” means a message transmitted by DTC, received by the Exchange Agent and forming part of the book-entry confirmation, to the effect that:

 

   

DTC has received an express acknowledgment from a participant in its Automated Tender Offer Program that is tendering Old Notes that are the subject of such book-entry confirmation;

 

   

such participant has received and agrees to be bound by the terms of the letter of transmittal; and

 

   

the agreement may be enforced against such participant.

Realogy will determine in its sole discretion all questions as to the validity, form, eligibility (including time of receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes. Realogy’s determination will be final and binding. Realogy reserves the absolute right to reject any Old Notes not properly tendered or any Old Notes the acceptance of which would, in the opinion of Realogy’s counsel, be unlawful. Realogy also reserves the right to waive any defects, irregularities or conditions of tender as to particular Old Notes. Realogy’s interpretation of the terms and conditions of the Exchange Offers (including the instructions in the letter of transmittal) will be final and binding on all parties. Unless waived, any defects or irregularities in connection with tenders of Old Notes must be cured within such time as Realogy shall determine. Although Realogy intends to notify holders of defects or irregularities with respect to tenders of Old Notes, neither Realogy, the Exchange Agent nor any other person will incur any liability for failure to give such notification. Tenders of Old Notes will not be deemed made until such defects or irregularities have been cured or waived. Any Old Notes received by the Exchange Agent that are not properly tendered and as to which the defects or irregularities have not been cured or waived will be returned to the Exchange Agent without cost to the tendering holder, unless otherwise provided in the letter of transmittal, promptly following the Expiration Date.

In all cases, Realogy will issue New Notes for Old Notes that Realogy has accepted for exchange under the Exchange Offers only after the Exchange Agent timely receives:

 

   

Old Notes or a timely book-entry confirmation of such Old Notes into the Exchange Agent’s account at DTC; and

 

   

a properly completed and duly executed letter of transmittal and all other required documents or a properly transmitted agent’s message.

By signing the letter of transmittal, each tendering holder of Old Notes will represent that, among other things:

 

   

that it is not our “affiliate,” as defined in Rule 144 under the Securities Act;

 

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that it is not engaged in, and does not intend to engage in, and has no arrangement or understanding with any person to participate in, a distribution of the New Notes to be issued in the Exchange Offers; and

 

   

that it is acquiring the New Notes in its ordinary course of business.

Book-Entry Transfer

The Exchange Agent will make a request to establish an account with respect to the Old Notes at DTC for purposes of the Exchange Offers promptly after the date of this prospectus; and any financial institution participating in DTC’s system may make book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into the Exchange Agent’s account at DTC in accordance with DTC’s procedures for transfer.

Withdrawal of Tenders

Except as otherwise provided in this prospectus, holders of Old Notes may withdraw their tenders at any time prior to the Expiration Date.

For a withdrawal to be effective:

 

   

the Exchange Agent must receive a written notice, which notice may be by telegram, telex, facsimile transmission or letter of withdrawal at one of the addresses set forth below under “—Exchange Agent;” or

 

   

holders must comply with the appropriate procedures of DTC’s Automated Tender Offer Program system.

Any such notice of withdrawal must:

 

   

specify the name of the person who tendered the Old Notes to be withdrawn;

 

   

identify the Old Notes to be withdrawn, including the principal amount of such Old Notes; and

 

   

where certificates for Old Notes have been transmitted, specify the name in which such Old Notes were registered, if different from that of the withdrawing holder.

If certificates for Old Notes have been delivered or otherwise identified to the Exchange Agent, then, prior to the release of such certificates, the withdrawing holder must also submit:

 

   

the serial numbers of the particular certificates to be withdrawn; and

 

   

a signed notice of withdrawal with signatures guaranteed by an eligible institution unless such holder is an eligible institution.

If Old Notes have been tendered pursuant to the procedure for book-entry transfer described above, any notice of withdrawal must specify the name and number of the account at DTC to be credited with the withdrawn Old Notes and otherwise comply with the procedures of such facility. Realogy will determine all questions as to the validity, form and eligibility, including time of receipt, of such notices, and our determination shall be final and binding on all parties. Realogy will deem any Old Notes so withdrawn not to have validity tendered for exchange for purposes of the Exchange Offers. Any Old Notes that have been tendered for exchange but that are not exchanged for any reason will be returned to their holder without cost to the holder (or, in the case of Old Notes tendered by book-entry transfer into the Exchange Agent’s account at DTC according to the procedures described above, such Old Notes will be credited to an account maintained with DTC for Old Notes) as soon as

 

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practicable after withdrawal, rejection of tender or termination of the Exchange Offers. Properly withdrawn Old Notes may be retendered by following one of the procedures described under “—Procedures for Tendering” above at any time on or prior to the Expiration Date.

Exchange Agent

Bondholder Communications Group LLC has been appointed as the Exchange Agent for the Exchange Offers. You should direct questions and requests for assistance, and send your executed letters of transmittal to the Exchange Agent as follows:

Bondholder Communications Group LLC

Attn: Reese Cooper

30 Broad St., 46th Floor

New York, NY 10004

Delivery of the letter of transmittal to an address other than as set forth above or transmission via facsimile other than as set forth above does not constitute a valid delivery of such letter of transmittal.

Requests for additional copies of this prospectus or of the letter of transmittal should be directed to the Exchange Agent at its telephone number and address noted above.

Fees and Expenses

Realogy will bear the expenses of soliciting tenders. The principal solicitation is being made by mail; however, Realogy may make additional solicitations by telegraph, telephone or in person by its officers and regular employees and those of its affiliates.

Realogy has not retained any dealer manager in connection with the Exchange Offers and will not make any payments to broker-dealers or others soliciting acceptances of the Exchange Offers. Realogy will, however, pay the Exchange Agent reasonable and customary fees for its services and reimburse it for its related reasonable out-of-pocket expenses.

Realogy’s expenses in connection with the Exchange Offers include:

 

   

SEC registration fees;

 

   

fees and expenses of the Exchange Agent and trustee;

 

   

accounting and legal fees and printing costs; and

 

   

related fees and expenses.

Transfer Taxes

Realogy will pay all transfer taxes, if any, applicable to the exchange of Old Notes under the Exchange Offers. The tendering holder, however, will be required to pay any transfer taxes, whether imposed on the registered holder or any other person, if:

 

   

certificates representing Old Notes for principal amounts not tendered or accepted for exchange are to be delivered to, or are to be issued in the name of, any person other than the registered holder of Old Notes tendered;

 

   

tendered Old Notes are registered in the name of any person other than the person signing the letter of transmittal; or

 

   

a transfer tax is imposed for any reason other than the exchange of Old Notes under the Exchange Offers.

 

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If satisfactory evidence of payment of such taxes is not submitted with the letter of transmittal, the amount of such transfer taxes will be billed to that tendering holder.

Holders who tender their Old Notes for exchange will not be required to pay any transfer taxes. However, holders who instruct Realogy to register New Notes in the name of, or request that Old Notes not tendered or not accepted in the Exchange Offers be returned to, a person other than the registered tendering holder will be required to pay any applicable transfer tax.

Consequences of Failure to Exchange

Holders of Old Notes who do not exchange their Old Notes for New Notes under the Exchange Offers will remain subject to the restrictions on transfer of such Old Notes:

 

   

as set forth in the legend printed on the Old Notes as a consequence of the issuance of the Old Notes pursuant to the exemptions from, or in transactions not subject to, the registration requirements of the Securities Act and applicable state securities laws; and

 

   

otherwise as set forth in the applicable offering memorandum distributed in connection with the private offering of the Old Notes.

In general, you may not offer or sell the Old Notes unless they are registered under the Securities Act, or if the offer or sale is exempt from registration under the Securities Act and applicable state securities laws. Except as, set forth under “—Purpose and Effect of the Exchange Offers” Realogy does not intend to register resales of the Old Notes under the Securities Act. Based on interpretations of the Staff, New Notes issued pursuant to the Exchange Offers may be offered for resale, resold or otherwise transferred by their holders, other than any such holder that is our “affiliate” within the meaning of Rule 144 under the Securities Act, without compliance with the registration and prospectus delivery provisions of the Securities Act, provided that the holders acquired the New Notes in the ordinary course of the holders’ business and the holders have not engaged in, do not intend to engage in, and have no arrangement or understanding with any person to participate in, a distribution of the New Notes to be acquired in the Exchange Offers. Any holder who tenders in the Exchange Offers who has engaged in, intends to engage in, or has an arrangement or understanding with any person to participate in, a distribution of the New Notes or who does not acquire the New Notes in the ordinary course of business:

 

   

cannot rely on the position of the Staff expressed in Exxon Capital Holdings Corporation, Morgan Stanley & Co. Incorporated or similar no-action letters; and

 

   

in the absence of an exemption, must comply with the registration and prospectus delivery requirements of the Securities Act in connection with the resale of the New Notes.

Accounting Treatment

Realogy will record the New Notes in our accounting records at the same carrying value as the Old Notes, as reflected in our accounting records on the date of exchange. Accordingly, Realogy will not recognize any gain or loss for accounting purposes in connection with the Exchange Offers.

Other

Participation in the Exchange Offers is voluntary, and you should carefully consider whether to accept. You are urged to consult your financial and tax advisors in making your own decision on what action to take.

Realogy may in the future seek to acquire untendered Old Notes in the open market or privately negotiated transactions, through subsequent exchange offers or otherwise. Realogy has no present plans to acquire any Old Notes that are not tendered in the Exchange Offers or to file a registration statement to permit resales of any untendered Old Notes.

 

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USE OF PROCEEDS

Realogy will not receive any cash proceeds from the issuance of the New Notes in the Exchange Offers. In consideration for issuing the New Notes as contemplated by this prospectus, Realogy will receive in exchange Old Notes in like principal amount, which will be canceled and as such will not result in any increase in our indebtedness.

 

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CAPITALIZATION

The following table sets forth Realogy’s cash and cash equivalents and capitalization as of March 31, 2011.

You should read this table in conjunction with the information included under the headings “Selected Historical Consolidated and Combined Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus.

 

Capitalization (excluding securitization obligations)

   As of March 31, 2011  
     (In millions)  

Cash and cash equivalents (1)

   $ 93   
        

Long-term debt (including current portion):

  

Senior Secured Credit Facility:

  

Non-extended revolving credit facility (2)

     13   

Extended revolving credit facility (2)

     17   

Non-extended term loan facility

     634   

Extended term loan facility

     1,822   

First and a Half Lien Notes

     700   

Second Lien Loans

     650   

Other bank indebtedness (3)

     100   

Existing Notes:

  

10.50% Senior Notes

     64   

Senior Toggle Notes

     49   

12.375% Senior Subordinated Notes (4)

     187   

Old Notes:

  

11.50% Senior Notes (5)

     488   

12.00% Senior Notes (6)

     129   

13.375% Senior Subordinated Notes

     10   

11.00% Convertible Notes

     2,110   
        

Total long-term debt, including short-term portion

     6,973   
        

Total equity (deficit)

     (1,297
        

Total capitalization (7)

   $ 5,676   
        

 

(1) Readily available cash as of March 31, 2011 was $72 million.
(2) Our borrowing availability under our $652 million revolving credit facility is reduced by outstanding letters of credit. The revolving credit facility includes a $200 million letter of credit sub-facility. The available capacity under this facility was reduced by $47 million and $58 million of outstanding letters of credit on the non-extended and the extended revolving credit facility, respectively at March 31, 2011. As of May 16, 2011, we had $325 million outstanding on the revolving credit facility.
(3) Consists of revolving credit facilities that are supported by letters of credit issued under the senior secured credit facility, of which $50 million is due in November 2011 and $50 million is due in January 2013.
(4) Consists of $190 million face amount of 12.375% Senior Subordinated Notes, less a discount of $3 million.
(5) Consists of $492 million face amount of Old 11.50% Senior Notes, less a discount of $4 million.
(6) Consists of $130 million face amount of Old 12.00% Senior Notes, less a discount of $1 million.
(7) Total capitalization excludes our securitization obligations which are collateralized by relocation related assets and are included in our current liabilities.

 

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SELECTED HISTORICAL CONSOLIDATED AND COMBINED FINANCIAL STATEMENTS

The following table presents our selected historical consolidated financial data and operating statistics. The consolidated statement of operations data for the years ended December 31, 2010, 2009 and 2008 and the consolidated balance sheet data as of December 31, 2010 and 2009 have been derived from our audited consolidated financial statements included in this prospectus. The statement of operations data for the periods from April 10, 2007 through December 31, 2007 and January 1, 2007 through April 9, 2007 and the year ended December 31, 2006 and the consolidated balance sheet data as of December 31, 2008, 2007 and December 31, 2006 have been derived from our consolidated and combined financial statements not included in this prospectus. The unaudited condensed consolidated statement of operations data and balance sheet data for the three months ended March 31, 2011 and 2010 have been derived from our unaudited historical condensed consolidated financial statements included in this prospectus. Results for interim periods are not indicative of results to be expected for any interim period or for a full year.

Holdings, the indirect parent of Realogy, does not conduct any operations other than with respect to its indirect ownership of Realogy. Intermediate, the parent of Realogy, does not conduct any operations other than with respect to its ownership of Realogy. Any expenses related to stock compensation issued by Holdings to the employees or directors of Realogy or franchise taxes incurred by Holdings are recorded in Realogy’s financial statements. As a result, there are no material differences between Holdings’ and Realogy’s financial statements for the three months ended March 31, 2011 and 2010 and the years ended December 31, 2010, 2009 and 2008 and no material differences between Intermediate’s and Realogy’s financial statements for the three months ended March 31, 2011 and 2010 and the years ended December 31, 2010, 2009 and 2008.

Although Realogy continued as the same legal entity after the Merger, the financial statements for 2007 are presented for two periods: January 1 through April 9, 2007 (the “Predecessor Period” or “Predecessor,” as context requires) and April 10 through December 31, 2007 (the “Successor Period” or “Successor,” as context requires), which relate to the period preceding the Merger and the period succeeding the Merger, respectively. The results of the Successor are not comparable to the results of the Predecessor due to the difference in the basis of presentation of purchase accounting as compared to historical cost. In the opinion of management, the statement of operations data for 2007 include all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of the results of operations as of the dates and for the periods indicated. The results for periods of less than a full year are not necessarily indicative of the results to be expected for any interim period or for a full year.

The selected historical consolidated and combined financial data and operating statistics presented below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and our consolidated financial statements and accompanying notes included in this prospectus.

 

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    Successor   Predecessor  
    As of or
For the three
months
ended March 31,
2011
    As of or
For the three
months
ended March 31,
2010
    As of or
For  the
Year Ended
December 31,
2010
    As of or For
the Year
Ended
December 31,
2009
    As of or For
the Year
Ended
December 31,
2008
    As of or For
the Period
from April 10,
2007 through
December 31,
2007
         As of or
For the Period
from January 1,
2007 through
April 9,
2007
    As of or For
the Year
Ended
December 31,

2006
 
    (in millions, except ratio and operating statistics)  

Statement of Operations Data:

                   

Net revenue

  $ 831      $ 819      $ 4,090      $ 3,932      $ 4,725      $ 4,472          $ 1,492      $ 6,483   

Total expenses

    1,067        1,011        4,084        4,266        6,988        5,708            1,560        5,888   
                                                                   

Income (loss) before income taxes, equity in earnings and noncontrolling interests

    (236     (192     6        (334     (2,263     (1,236         (68     595   

Income tax expense (benefit)

    1        6        133        (50     (380     (439         (23     237   

Equity in (earnings) losses of unconsolidated entities

    —          (1     (30     (24     28        (2         (1     (9
                                                                   

Net income (loss)

    (237     (197     (97     (260     (1,911     (795         (44     367   

Less: Net income attributable to noncontrolling interests

    —          —          (2     (2     (1     (2         —          (2
                                                                   

Net income (loss) attributable to Realogy

  $ (237   $ (197     (99     (262     (1,912     (797       $ (44   $ 365   
                                                                   

Net loss attributable to Holdings

  $ (237   $ (197   $ (99   $ (262   $ (1,912   $ (797         —          —     
                                                                   

Earnings (loss) per share:

                   

Basic loss per share:

  $ (1.18   $ (0.98   $ (0.49   $ (1.31   $ (9.55   $ (3.98       $ (0.20   $ 1.50   

Diluted loss per share:

  $ (1.18   $ (0.98   $ (0.49   $ (1.31   $ (9.55   $ (3.98       $ (0.20   $ 1.50   

Weighted average common and common equivalent shares outstanding:

                   

Basic:

    200.4        200.2        200.4        200.2        200.1        200.1            217.5        242.7   

Diluted:

    200.4        200.2        200.4        200.2        200.1        200.1            217.5        242.7   

Balance Sheet Data:

                   

Securitization assets

    390        306      $ 393      $ 364      $ 845      $ 1,300            $ 1,190   

Total assets

    7,913        8,029        8,029        8,041        8,912        11,172              6,668   

Securitization obligations

    311        239        331        305        703        1,014              893   

Long-term debt, including short-term portion

    6,973        6,738        6,892        6,706        6,760        6,239              1,800   

Equity (deficit)

    (1,297     (1,177     (1,072     (981     (740     1,203              2,487   

Other Financial Data:

                   

Ratio of earnings to fixed charges (1)

    —          —          1.1x        —          —          —              —          4.5x   

Cash dividends

    —          —          —          —          —          —              —          2,183 (2) 

 

(1)

For purposes of computing the ratio of earnings to fixed charges, earnings consist of income before income taxes and non-controlling interests plus fixed charges. Fixed charges consist of interest expense on all indebtedness, including amortization of deferred financing costs, and the portion of rental expense that management believes is representative of the interest factor. In addition, interest expense includes interest incurred related to our securitization obligations. Interest related to these securitization obligations are recorded within net revenues on the consolidated and combined statements of operations as the related borrowings are utilized to fund advances within our relocation business where interest is earned on such advances. The interest related to these securitization obligations was $1 million and $2 million for the three months ended March 31, 2011 and 2010, respectively, and $7 million, $12 million and $46 million for the years ended December 31, 2010, 2009 and 2008, respectively, $45 million for the period from April 10 through December 31, 2007, $14 million for the period from January 1 through April 9, 2007 and $42 million for the year ended December 31, 2006. Our earnings were insufficient to

 

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cover fixed charges by $231 million for the three months ended March 31, 2011, $190 million for the three months ended March 31, 2010, $278 million for the year ended December 31, 2009, $2,317 million for the year ended December 31, 2008, $1,229 million for the period from April 10 to December 31, 2007, and by $65 million for the period from January 1 to April 9, 2007.

(2) In 2006, $2,183 million of net distribution payments were made to Cendant related to the separation from Cendant.

 

     Three Months Ended
March 31,
     Year Ended
December 31,
 
     2011      2010      2010      2009      2008      2007      2006  

Operating Statistics:

                    

Real Estate Franchise Services

                    

Closed homesale sides

     184,643         193,340         922,341         983,516         995,622         1,221,206         1,515,542   

Average homesale price

   $ 193,710       $ 188,478       $ 198,076       $ 190,406       $ 214,271       $ 230,346       $ 231,664   

Average homesale broker commission rate

     2.54%         2.55%         2.54%         2.55%         2.52%         2.49%         2.47%   

Net effective royalty rate

     4.87%         5.04%         5.00%         5.10%         5.12%         5.03%         4.87%   

Royalty per side

   $ 251       $ 252       $ 262       $ 257       $ 287       $ 298       $ 286   

Company Owned Real Estate Brokerage Services

                    

Closed homesale sides

     51,200         52,532         255,287         273,817         275,090         325,719         390,222   

Average homesale price

   $ 414,164       $ 417,782       $ 435,500       $ 390,688       $ 479,301       $ 534,056       $ 492,669   

Average homesale broker commission rate

     2.50%         2.48%         2.48%         2.51%         2.48%         2.47%         2.48%   

Gross commission income per side

   $ 11,188       $ 11,161       $ 11,571       $ 10,519       $ 12,612       $ 13,806       $ 12,691   

Relocation Services

                    

Initiations

     35,108         32,429         148,304         114,684         136,089         132,343         130,764   

Referrals

     12,812         12,109         69,605         64,995         71,743         78,828         84,893   

Title and Settlement Services

                    

Purchase title and closing units

     18,971         19,947         94,290         104,689         110,462         138,824         161,031   

Refinance title and closing units

     16,826         11,935         62,225         69,927         35,893         37,204         40,996   

Average price per closing unit

   $ 1,386       $ 1,353       $ 1,386       $ 1,317       $ 1,500       $ 1,471       $ 1,405   

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with our consolidated financial statements and accompanying notes thereto included elsewhere herein. Unless otherwise noted, all dollar amounts in tables are in millions. Holdings, the indirect parent of Realogy, does not conduct any operations other than with respect to its indirect ownership of Realogy. Any expenses related to stock compensation issued by Holdings to the employees or directors of Realogy or franchise taxes incurred by Holdings are recorded in Realogy’s financial statements. As a result, there are no material differences between Holdings’ and Realogy’s financial statements for the three months ended March 31, 2011 and 2010 and the years ended December 31, 2010, 2009 or 2008. This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements. See “Forward-Looking Statements” and “Risk Factors” for a discussion of the uncertainties, risks and assumptions associated with these statements. Actual results may differ materially from those contained in any forward-looking statements.

Overview

We are a global provider of real estate and relocation services and report our operations in the following four segments:

 

   

Real Estate Franchise Services (known as Realogy Franchise Group or RFG)—franchises the Century 21®, Coldwell Banker®, ERA®, Sotheby’s International Realty®, Coldwell Banker Commercial® and Better Homes and Gardens® Real Estate brand names. We launched the Better Homes and Gardens® Real Estate brand in July 2008. As of March 31, 2011, our franchise system had approximately 14,600 franchised and company owned offices and 260,400 independent sales associates operating under our brands in the U.S. and 99 other countries and territories around the world, which included approximately 740 of our company owned and operated brokerage offices with approximately 43,000 independent sales associates. We franchise our real estate brokerage franchise systems to real estate brokerage businesses that are independently owned and operated. We provide operational and administrative services, tools and systems to franchisees, which are designed to assist franchisees in achieving increased revenue and profitability. Such services include national and local advertising programs, listing and agent-recruitment tools, including technology, training and purchasing discounts through our preferred vendor programs. Franchise revenue principally consists of royalty and marketing fees from our franchisees. The royalty received is primarily based on a percentage of the franchisee’s commissions and/or gross commission income. Royalty fees are accrued as the underlying franchisee revenue is earned (upon closing of the homesale transaction). Annual volume incentives given to certain franchisees on royalty fees are recorded as a reduction to revenue and are accrued for in relative proportion to the recognition of the underlying gross franchise revenue. Franchise revenue also includes initial franchise fees, which are generally non-refundable and are recognized by us as revenue when all material services or conditions relating to the sale have been substantially performed (generally when a franchised unit opens for business). Royalty increases or decreases are recognized with little corresponding increase or decrease in expenses due to the significant operating efficiency within the franchise operations. In addition to royalties received from our independently owned franchisees, our Company Owned Real Estate Brokerage Services segment pays royalties to the Real Estate Franchise Services segment.

 

   

Company Owned Real Estate Brokerage Services (known as NRT)—operates a full-service real estate brokerage business principally under the Coldwell Banker®, ERA®, Corcoran Group® and Sotheby’s International Realty® brand names. As an owner-operator of real estate brokerages, we assist home buyers and sellers in listing, marketing, selling and finding homes. We earn commissions for these services, which are recorded upon the closing of a real estate transaction (i.e., purchase or sale of a home), which we refer to as gross commission income. We then pay commissions to real estate agents, which are recognized concurrently with associated revenues. We also operate a large independent residential REO asset manager. These REO operations facilitate the maintenance and sale

 

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of foreclosed homes on behalf of lenders. The profitability of the REO business is countercyclical to the overall state of the housing market and was a meaningful contributor to the 2010, 2009 and 2008 financial results of the Company Owned Real Estate Brokerage segment.

 

   

Relocation Services (known as Cartus)—primarily offers clients employee relocation services such as homesale assistance, home finding and other destination services, expense processing, relocation policy counseling and other consulting services, arranging household goods moving services, visa and immigration support, intercultural and language training and group move management services. We provide relocation services to corporate and government clients for the transfer of their employees. Such services include the purchasing and/or selling of a transferee’s home, providing home equity advances to transferees (generally guaranteed by the client), expense processing, arranging household goods moving services, home-finding and other related services. We earn revenues from fees charged to clients for the performance and/or facilitation of these services and recognize such revenue as services are provided. In the majority of relocation transactions, the gain or loss on the sale of a transferee’s home is generally borne by the client. For all homesale transactions, the value paid to the transferee is either the value per the underlying third party buyer contract with the transferee, which results in no gain or loss to us, or the appraised value as determined by independent appraisers. We generally earn interest income on the funds we advance on behalf of the transferring employee, which is typically based on prime rate or LIBOR rate and recorded within other revenue (as is the corresponding interest expense on the securitization borrowings) in the Consolidated Statement of Operations as earned until the point of repayment by the client. Additionally, we earn revenue from real estate brokers and other third-party service providers. We recognize such fees from real estate brokers at the time the underlying property closes. For services where we pay a third-party provider on behalf of our clients, we generally earn a referral fee or commission, which is recognized at the time of completion of services.

 

   

Title and Settlement Services (known as Title Resource Group or TRG)—provides full-service title, settlement and vendor management services to real estate companies, affinity groups, corporations and financial institutions with many of these services provided in connection with the Company’s real estate brokerage and relocation services business. We provide title and closing services, which include title search procedures for title insurance policies, homesale escrow and other closing services. Title revenues, which are recorded net of amounts remitted to third party insurance underwriters, and title and closing service fees are recorded at the time a homesale transaction or refinancing closes. We provide many of these services to third party clients in connection with transactions generated by our Company Owned Real Estate Brokerage and Relocation Services segments as well as various financial institutions in the mortgage lending industry. We also serve as an underwriter of title insurance policies in connection with residential and commercial real estate transactions.

As discussed under the heading “—Current Industry Trends,” the domestic residential real estate market has been in a significant and lengthy downturn. As a result, our results of operations have been, and may continue to be, materially adversely affected.

July 2006 Separation from Cendant

Realogy was incorporated on January 27, 2006 to facilitate a plan by Cendant to separate into four independent companies—one for each of Cendant’s real estate services, travel distribution services (“Travelport”), hospitality services (including timeshare resorts) (“Wyndham Worldwide”) and vehicle rental businesses (“Avis Budget Group”). Prior to July 31, 2006, the assets of the real estate services businesses of Cendant were transferred to Realogy and, on July 31, 2006, Cendant distributed all of the shares of Realogy’s common stock held by it to the holders of Cendant common stock issued and outstanding on the record date for the distribution, which was July 21, 2006 (the “Separation”). The Separation was effective on July 31, 2006.

Before the Separation, Realogy entered into a Separation and Distribution Agreement, a Tax Sharing Agreement and several other agreements with Cendant and Cendant’s other businesses to effect the separation

 

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and distribution and provide a framework for Realogy’s relationships with Cendant and Cendant’s other businesses after the Separation. These agreements govern the relationships among Realogy, Cendant, Wyndham Worldwide and Travelport subsequent to the completion of the separation plan and provide for the allocation among Realogy, Cendant, Wyndham Worldwide and Travelport of Cendant’s assets, liabilities and obligations attributable to periods prior to the Separation.

April 2007 Merger Agreement with Affiliates of Apollo

On December 15, 2006, Realogy entered into an agreement and plan of merger with Domus Holdings Corp. (“Holdings”) and Domus Acquisition Corp. which are affiliates of Apollo Management VI, L.P., an entity affiliated with Apollo Global Management, LLC. Under the merger agreement, Holdings acquired the outstanding shares of Realogy pursuant to the merger of Domus Acquisition Corp. with and into Realogy, with Realogy being the surviving entity (the “Merger”). The Merger was consummated on April 10, 2007. All of Realogy’s issued and outstanding common stock is currently owned by Intermediate, which is a direct wholly owned subsidiary of Holdings.

Realogy incurred substantial indebtedness in connection with the Merger, the aggregate proceeds of which were sufficient to pay the aggregate merger consideration, repay a portion of Realogy’s then outstanding indebtedness and pay fees and expenses related to the Merger. Specifically, Realogy entered into the senior secured credit facility, issued unsecured notes and refinanced the credit facilities governing Realogy’s relocation securitization programs (the Merger and the related financing transactions being referred to as the “Merger Transactions”). In addition, investment funds affiliated with, or co-investment vehicles managed by, Apollo Management VI, L.P. or one of its affiliates (together with Apollo Global Management, LLC and its subsidiaries, “Apollo”), as well as members of management who purchased Holdings common stock with cash or through rollover equity, contributed $2,001 million to Realogy to complete the Merger Transactions, which was treated as a contribution to Realogy’s equity. Holdings common stock is currently owned or controlled solely by Apollo, although other parties own Convertible Notes that may be converted into Holdings common stock.

Refinancing Transactions

In January and February of 2011, Realogy completed a series of transactions, referred to herein as the Refinancing Transactions, to refinance both its secured and unsecured indebtedness. The Refinancing Transactions, among other things, have:

 

   

extended the maturities on more than 90% of Realogy’s Existing Notes by at least three years;

 

   

provided a mechanism for a potential deleveraging of Realogy’s debt through the issuance of $2.1 billion aggregate principal amount of Convertible Notes that mature in 2018 and that are convertible at any time, at the holder’s option, into Class A Common Stock of Holdings;

 

   

extended the maturities of a significant portion of its first lien senior secured indebtedness from 2013 to 2016 (including 79% of its $3.1 billion term loan facility);

 

   

replaced $700 million of its first lien secured debt with secured indebtedness due in 2019 that is not included in the numerator of its senior secured leverage ratio, thereby significantly improving Realogy’s operating cushion under such ratio and mitigating concerns regarding Realogy maintaining compliance with such ratio for at least the next twelve months; and

 

   

maintained access to $650 million of borrowing under its senior secured revolving credit facilities.

We estimate that our annual cash interest will increase by approximately $55 million based upon the debt balances at December 31, 2010 after giving effect to the Refinancing Transactions, and assuming LIBOR rates as of December 31, 2010.

 

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Debt Exchange Offering

On January 5, 2011, Realogy completed the Debt Exchange Offering relating to its outstanding 10.50% Senior Notes, Senior Toggle Notes and 12.375% Senior Subordinated Notes. Approximately $2,110 million aggregate principal amount of Existing Notes were tendered for Convertible Notes, which are convertible at the holder’s option into Class A Common Stock and approximately $632 million aggregate principal amount of Existing Notes were tendered for Old Notes.

On January 5, 2011, Realogy issued:

 

   

$492 million aggregate principal amount of Old 11.50% Senior Notes and $1,144 million aggregate principal amount of Series A Convertible Notes in exchange for $1,636 million aggregate principal amount of outstanding 10.50% Senior Notes;

 

   

$130 million aggregate principal amount of Old 12.00% Senior Notes and $291 million aggregate principal amount of Series B Convertible Notes in exchange for $421 million aggregate principal amount of outstanding Senior Toggle Notes; and

 

   

$10 million aggregate principal amount of Old 13.375% Senior Subordinated Notes and $675 million aggregate principal amount of Series C Convertible Notes in exchange for $685 million aggregate principal amount of outstanding 12.375% Senior Subordinated Notes.

In addition, upon receipt of the requisite consents from the holders of the 10.50% Senior Notes and Senior Toggle Notes, Realogy amended the respective indentures governing the terms of such notes to remove substantially all of the restrictive covenants and certain other provisions previously contained in those indentures.

As a result of the Debt Exchange Offering, Realogy extended the maturity of approximately $2,742 million aggregate principal amount of the Unsecured Notes to 2017 and 2018, leaving approximately $303 million aggregate principal amount of Existing Notes that mature in 2014 and 2015. In addition, pursuant to the terms of the indenture governing the Convertible Notes, the Convertible Notes are redeemable at Realogy’s option at a price equal to 90% of the principal amount thereof, plus accrued and unpaid interest to the date of redemption upon a Qualified Public Offering.

Realogy and Holdings have filed a shelf registration statement with the SEC with respect to resales of the outstanding Convertible Notes and the Class A Common Stock issuable upon conversion of the Convertible Notes.

Amendment to Senior Secured Credit Facility

Effective February 3, 2011, Realogy entered into the Senior Secured Credit Facility Amendment and an incremental assumption agreement, which resulted in the following:

 

   

certain lenders extended the maturity of a significant portion of first lien term loans, revolving commitments and synthetic letter of credit commitments to October 10, 2016, April 10, 2016, and October 10, 2016, respectively, which extensions resulted in approximately $2,424 million aggregate principal amount of extended term loans, approximately $461 million aggregate principal amount of commitments in respect of extended revolving loans and approximately $171 million aggregate principal amount of extended synthetic letter of credit commitments;

 

   

certain lenders simultaneously converted approximately $98 million aggregate principal amount of revolving commitments in respect of extended revolving loans to extended term loans, thereby reducing the commitments under the revolving credit facility to $652 million;

 

   

the net proceeds of the $700 million aggregate principal amount of First and a Half Lien Notes, together with cash on hand, were used to prepay $700 million of the outstanding extended term loans, thereby reducing the aggregate principal amount of extended term loans to $1,822 million;

 

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the interest rate with respect to the extended term loans was increased by 1.25% from the rate applicable to the non-extended term loans;

 

   

the interest rate with respect to the extended revolving loans was increased by 1.0% from the rate applicable to the non-extended revolving loans; and

 

   

the fee with respect to the synthetic letter of credit facility was increased by 1.25% from the fee applicable to the non-extended synthetic letter of credit facility.

The Senior Secured Credit Facility Amendment also provides for the following:

 

   

allows for one or more future issuances of additional senior secured notes or unsecured notes or loans to prepay Realogy’s first lien term loans, to be secured on either a pari passu basis with, or junior to, its first lien obligations under the senior secured credit facility;

 

   

allows for one or more future issuances of additional senior secured or unsecured notes or loans to prepay Realogy’s second lien loans, to be secured on a pari passu basis with, or junior to, its second lien loans under the senior secured credit facility;

 

   

allows for the incurrence of additional incremental term loans that are secured on a junior basis to the second lien loans in an aggregate amount not to exceed $350 million; and

 

   

provides that debt financing secured by a lien that is junior in priority to the first lien obligations under the senior secured credit facility (including, but not limited to, the First and a Half Lien Notes) will not, subject to certain exceptions, constitute senior secured debt for purposes of calculating the senior secured leverage ratio under the senior secured credit facility.

The extended term loans do not require any scheduled amortization of principal. The non-extended term loan facility will continue to provide for quarterly amortization payments totaling 1% per annum of the principal amount of the non-extended first lien term loans.

Issuance of First and a Half Lien Notes

On February 3, 2011, Realogy issued $700 million aggregate principal amount of First and a Half Lien Notes in a private offering exempt from the registration requirements of the Securities Act. The First and a Half Lien Notes are secured by substantially the same collateral as Realogy’s existing secured obligations under the senior secured credit facility, but the priority of the collateral liens securing the First and a Half Lien Notes is (i) junior to the collateral liens securing Realogy’s first lien obligations under the senior secured credit facility and (ii) senior to the collateral liens securing Realogy’s second lien obligations under the senior secured credit facility.

As discussed above, the net proceeds from the offering of the First and a Half Lien Notes, along with cash on hand, were used to prepay $700 million of certain of Realogy’s first lien term loans that were extended in connection with the Senior Secured Credit Facility Amendment.

For additional information related to the Refinancing Transactions, see “Financial Condition, Liquidity and Capital Resources—Financial Obligations”.

 

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Impairment of Goodwill and Intangible Assets

2010 and 2009

During the fourth quarter, Realogy performed its annual impairment analysis of goodwill and unamortized intangible assets. This analysis resulted in no impairment charges for 2010 and 2009.

2008

The impairment analysis performed in the fourth quarter of 2008 resulted in an impairment charge for 2008 of $1,739 million ($1,523 million, net of income tax benefit). The impairment charge reduced intangible assets by $384 million and reduced goodwill by $1,355 million. The impairment charge impacted the Real Estate Franchise Services segment by $953 million, the Company Owned Real Estate Brokerage services segment by $162 million, the Relocation Services segment by $335 million and the Title and Settlement Services segment by $289 million. In addition, in 2008, the Company recorded impairment charges of $50 million related to investments in unconsolidated entities.

Current Industry Trends

Our businesses compete primarily in the domestic residential real estate market. This market is cyclical in nature and although it has shown strong growth over the past 37 years, it has been in a significant and prolonged downturn, which initially began in the second half of 2005. Based upon data published by the National Association of Reactors (“NAR”) from 2005 to 2010, the number of annual U.S. existing homesale units has declined by 31% and the median price has declined by 21%.

In response to the housing downturn, the U.S. government implemented certain actions during the past several years to assist in the stabilization and/or a recovery of the residential real estate market. These measures have included: (1) the placement of Fannie Mae and Freddie Mac in conservatorship in September 2008 and the funding of over $130 billion to these entities to backstop shortfalls in their capital requirements; (2) the establishment, and subsequent expansion and extension, of a federal homebuyer tax credit for qualified buyers (that, as extended, required signed contracts on or before April 30, 2010 and completion by September 2010); (3) as part of a broader plan to bring stability to credit markets and stimulate the housing market, the purchase of mortgage-backed securities by the Federal Reserve in an attempt to maintain low mortgage rates (the first phase of which ended on March 31, 2010 and the second phase of which is ending on June 30, 2011); (4) the continuation of the 2008 higher loan limits for FHA, Freddie Mac and Fannie Mae loans through September 30, 2011; and (5) the availability of low-cost refinancing through Fannie Mae and Freddie Mac to certain homeowners negatively impacted by falling home prices, encouraging lenders, through government financial incentives, to modify loan terms with borrowers at risk of foreclosure or already in foreclosure. The residential real estate market benefited from these actions.

During the second half of 2009, homesale transactions increased on a year-over-year basis due in part to modest economic growth, an improvement in the stock market from its March 2009 lows, gradually improving consumer confidence (though it remained at relatively low levels) and the effect of government stimulus including the homebuyer tax credit and monetary policies. The increase in homesale transactions continued in the first half of 2010 and was positively impacted by the extension of the federal homebuyer tax credit, historically low mortgage rates and a high housing affordability index. After June 30, 2010, we saw a substantial decrease in consumer buying activity, particularly in the low and moderate price ranges. We believe this was due to the pull-forward of activity from the third quarter of 2010 into the second quarter and continuing economic uncertainty, high unemployment and relatively low levels of consumer confidence. These factors adversely impacted our results in both the third and fourth quarters of 2010.

Interest rates continue to be at low levels by historical standards, which we believe has helped stimulate demand in the residential real estate market, thereby reducing the rate of sales volume decline. According to Freddie Mac, interest rates on commitments for fixed-rate first mortgages have decreased from an annual average

 

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of 6.0% in 2008 to an annual average of 4.7% in 2010. Offsetting some of the favorable impact of lower interest rates are conservative mortgage underwriting standards, increased down payment requirements and limited or negative equity in homes in certain markets.

According to NAR, the inventory of existing homes for sale is 3.5 million homes at March 2011 compared to 3.6 million homes at December 2010. The March 2011 inventory level represents a seasonally adjusted 8.3 months supply. The supply remains higher than the historical average and could increase due to the release of homes for sale by financial institutions. These factors could continue to add downward pressure on the price of existing homesales.

Recent Legislative and Regulatory Matters

Dodd-Frank Act. On July 21, 2010, the Dodd-Frank Act was signed into law for the express purpose of regulating the financial services industry. The Dodd-Frank Act establishes an independent federal bureau of consumer financial protection to enforce laws involving consumer financial products and services, including mortgage finance. The bureau is empowered with examination and enforcement authority. The Dodd-Frank Act also establishes new standards and practices for mortgage originators, including determining a prospective borrower’s ability to repay their mortgage, removing incentives for higher cost mortgages, prohibiting prepayment penalties for non-qualified mortgages, prohibiting mandatory arbitration clauses, requiring additional disclosures to potential borrowers and restricting the fees that mortgage originators may collect. While we are continuing to evaluate all aspects of the Dodd-Frank Act, such legislation and regulations promulgated pursuant to such legislation as well as other legislation that may be enacted to reform the U.S. housing finance market could materially and adversely affect the mortgage and housing industries, result in heightened federal regulation and oversight of the mortgage and housing industries, increase down payment requirements, increase mortgage costs and result in increased costs and potential litigation for housing market participants.

Certain provisions of the Dodd-Frank Act may impact the operation and practices of Fannie Mae, Freddie Mac and other government sponsored entities, or GSEs, and require sponsors of securitizations to retain a portion of the economic interest in the credit risk associated with the assets securitized by them. Substantial reduction in, or the elimination of, GSE demand for mortgage loans could have a material adverse effect on the mortgage industry and the housing industry in general and these provisions may reduce the availability of mortgages to certain individuals.

Potential Reform of U.S. Housing Finance Market and Potential Wind-down of Freddie Mac and Fannie Mae. Congress has recently held hearings on the future of Freddie Mac and Fannie Mae and other government sponsored entities or GSEs with a view towards further legislative reform. On February 11, 2011, the Obama Administration issued a report to the U.S. Congress outlining proposals to reform the U.S. housing finance market, including, among other things, reform designed to reduce government support for housing finance and the winding down of Freddie Mac and Fannie Mae over a period of years. Numerous pieces of legislation seeking various types of reform for the GSEs have been introduced recently in Congress. Two significant questions that need to be addressed in any such reform are: (1) will banks and other private sources of capital be able to fill homebuyers’ needs as the government seeks to pull back some of the housing mortgage market support and (2) will these other sources of capital be available at rates which are reasonably attractive to potential homebuyers. Legislation, if enacted, which curtails Freddie Mac and/or Fannie Mae’s activities and/or results in the wind down of these entities could increase mortgage costs and could result in more stringent underwriting guidelines imposed by lenders, either of which could materially adverse affect the housing market in general and our operations in particular. Given the current uncertainty with respect to the extent, if any, of such reform, it is difficult to predict either the long-term or short-term impact of government action that may be taken.

***

We believe that long-term demand for housing and the growth of our industry is primarily driven by affordability, the economic health of the domestic economy, positive demographic trends such as population

 

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growth, increasing household formation, interest rate trends and locally based dynamics such as employment levels and housing demand relative to housing supply. While the housing market has shown signs of stabilization, there remains substantial uncertainty with respect to the timing and scope of a housing recovery. Factors that may negatively affect a housing recovery include:

 

   

higher mortgage rates as well as reduced availability of mortgage financing;

 

   

lower unit sales, due to the reluctance of first time homebuyers to purchase a home and move-up buyers having limited or negative equity in homes;

 

   

lower average homesale price, particularly if banks and other mortgage servicers liquidate foreclosed properties that they are currently holding;

 

   

continuing high levels of unemployment;

 

   

unsustainable economic recovery in the U.S. or, if sustained, a recovery resulting in only modest economic growth;

 

   

a lack of stability or improvement in home ownership levels in the U.S.; and

 

   

legislative or regulatory reform, including but not limited to reform that materially adversely impacts the financing of the U.S. housing market.

Consequently, we cannot predict when the residential real estate industry will return to a period of stabilization and sustainable growth. Moreover, if the residential real estate market or the economy as a whole does not improve, we may experience further adverse effects on our business, financial condition and liquidity, including our ability to access capital.

Many of the trends impacting our businesses that derive revenue from homesales also impact our Relocation Services business, which is a global provider of outsourced employee relocation services. In addition to general residential housing trends, key drivers of our Relocation Services business are corporate spending and employment trends which have shown signs of stabilization; however, there can be no assurance that corporate spending on relocation services will return to previous levels following any economic recovery.

Homesales

There was an unusual pattern of activity in 2010 which creates atypical year over year quarterly comparisons in 2011. The number of homesale transactions was positively impacted in the second quarter of 2010 as a result of the homebuyer tax credit. We believe the third quarter of 2010 was weak due to the pull-forward of sales into the second quarter of 2010 because of the expiration of the 2010 tax credit as well as the continued weak economic conditions and high unemployment. Homesale transactions in the fourth quarter of 2010 continued to decline compared to the prior year fourth quarter as a result of both the lapse of the 2010 federal homebuyer tax credit and due to increased transaction volume in late 2009 due to the 2009 federal homebuyer tax credit program.

 

                      2011 vs. 2010  
    Full Year
2008 vs. 2007
    Full Year
2009 vs. 2008
    Full Year
2010 vs. 2009
    First
Quarter
    Second
Quarter
Forecast
    Third
Quarter
Forecast
    Fourth
Quarter
Forecast
    Full Year
2011 vs. 2010
Forecast
 

Number of Homesales

               

Industry

               

NAR (a)

    (13 %)      5     (5 %)      (1 %)      (6 %)      27     14     8

Fannie Mae (a)

    (13 %)      5     (5 %)      (2 %)      (7 %)      26     11     6

Realogy

               

Real Estate Franchise Services

    (18 %)      (1 %)      (6 %)      (4 %)         

Company Owned Real Estate Brokerage Services

    (16 %)      —       (7 %)      (3 %)         

 

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(a) Existing homesale data is as of the most recent NAR and Fannie Mae press release.

Existing homesale transactions were reported by NAR to be 4.9 million homes for 2010 compared to 5.2 million homes in 2009. NAR estimates that existing homesale transactions will increase to 5.3 million for 2011 reflecting a 8% increase in homesale transactions.

As of their most recent releases, NAR and Fannie Mae are forecasting an increase of 6% and 7%, respectively, in existing homesale transactions for 2012 compared to 2011.

Homesale Price

In 2009, the decrease in average homesale price for the Company Owned Real Estate Brokerage Services segment was impacted by a higher level of REO and short sale activity as well as a meaningful shift in the mix and volume of homesale activity, excluding REO and short sale activity, from higher price points to lower price points. In 2010, the percentage increase in the average price of homes brokered by our franchisees and company owned offices significantly outperformed the percentage change in median home price reported by NAR, due to the geographic areas they serve as well as a greater impact from increased activity in the mid and higher price point areas and less REO activity in our company owned offices compared to the prior year. In its most recent release on first quarter 2011 homesale activity, NAR reported median home price declines of 5% in the first quarter of 2011 compared to that same period in 2010. We believe the continued drop in median price on a national basis is due to the high level of distressed sales. NAR reported that distressed sales accounted for a 39% market share for the three months ended March 2011 compared to a 36% market share for the three months ended March 2010. Realogy’s results for 2010 and the first quarter of 2011 continued to outperform the broader market for the reasons mentioned above as it relates to average sales price, with RFG average homesales price up 3% and NRT average homesales price down 1% in the first quarter of 2011. For the full year 2011, NAR and Fannie Mae are forecasting median price to be down compared to 2010 with a decrease of 2% and 5%, respectively, again reflecting the impact of distressed sales activity on the residential real estate market as a whole.

                      2011 vs. 2010  
    Full Year
2008 vs. 2007
    Full Year
2009 vs. 2008
    Full Year
2010 vs. 2009
    First
Quarter
    Second
Quarter
Forecast
    Third
Quarter
Forecast
    Fourth
Quarter
Forecast
    Full Year
2011 vs. 2010
Forecast
 

Homesales Price

               

Industry (median)

               

NAR (a)

    (10 %)      (13 %)      —       (5 %)      (4 %)      —       1     (2 %) 

Fannie Mae (a)

    (10 %)      (13 %)      —       (3 %)      (6 %)      (5 %)      (4 %)      (5 %) 

Realogy (average)

               

Real Estate Franchise Services

    (7 %)      (11 %)      4     3        

Company Owned Real Estate Brokerage Services

    (10 %)      (18 %)      11     (1 %)         

 

(a) Existing homesale price data is as of the most recent NAR and Fannie Mae press release.

As of their most recent releases, NAR and Fannie Mae are forecasting an increase of 4% and 1%, respectively, in median homesale prices for 2012 compared to 2011.

***

 

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While data provided by NAR and Fannie Mae are two indicators of the direction of the residential housing market, we believe that homesale statistics will continue to vary between us and NAR and Fannie Mae because they use survey data in their historical reports and forecasting models whereas we use data based on actual reported results. In addition to the differences in calculation methodologies, there are geographical differences and concentrations in the markets in which we operate versus the national market. For instance, comparability is impaired due to NAR’s utilization of seasonally adjusted annualized rates whereas we report actual period over period changes and their use of median price for their forecasts compared to our average price. Additionally, NAR data is subject to periodic review and revision. NAR has recently issued a press release disclosing that it is engaged in a review of its sampling and methodology processes with respect to existing homesale data to ensure accuracy. NAR expects to conclude this analysis and publish any revisions in the summer of 2011. Any such changes could result in downward revisions of NAR’s historical survey data but would have no impact on our reported financial results or key business driver information. While we believe that the industry data presented herein are derived from the most widely recognized sources for reporting U.S. residential housing market statistical data, we do not endorse or suggest reliance on this data alone. We also note that forecasts are inherently uncertain or speculative in nature and actual results for any period may materially differ.

Housing Affordability Index

According to NAR, the housing affordability index has continued to improve as a result of the homesale price declines which began in 2007. An index above 100 signifies that a family earning the median income has more than enough income to qualify for a mortgage loan on a median-priced home, assuming a 20 percent down payment. The housing affordability index improved to 174 for 2010 compared to 169 for 2009 and 138 for 2008. The March 2011 index of 188 increased from the 2010 index and the overall improvement in this index could favorably impact a housing recovery.

Other Factors

During the downturn in the residential real estate market, certain of our franchisees have experienced operating difficulties. As a result, many of our franchisees with multiple offices have reduced overhead and consolidated offices in an attempt to remain competitive in the marketplace. In addition, we have had to terminate franchisees due to non-reporting and non-payment which could adversely impact reported transaction volumes in the future. Due to the factors noted above, we significantly increased our bad debt and note reserves in prior years and continue to actively monitor the collectability of receivables and notes from our franchisees.

The real estate industry generally benefits from rising home prices and increased volume of homesales and conversely is harmed by falling prices and falling volume of homesales. The housing industry is also affected by mortgage rate volatility as well as strict mortgage underwriting criteria which may limit certain customers’ ability to qualify for a mortgage. Typically, if mortgage rates fall or remain low, the number of homesale transactions increase as homeowners choose to move or renters decide to purchase a home because financing appears affordable. If mortgage rates rise, the number of homesale transactions may decrease as potential home sellers choose to stay with their current mortgage and potential home buyers choose to rent rather than pay these higher mortgage rates.

Key Drivers of Our Businesses

Within our Real Estate Franchise Services segment and our Company Owned Real Estate Brokerage Services segment, we measure operating performance using the following key operating statistics: (i) closed homesale sides, which represents either the “buy” side or the “sell” side of a homesale transaction, (ii) average homesale price, which represents the average selling price of closed homesale transactions and (iii) average homesale broker commission rate, which represents the average commission rate earned on either the “buy” side or “sell” side of a homesale transaction. Our Real Estate Franchise Services segment is also impacted by the net effective royalty rate which represents the average percentage of our franchisees’ commission revenues payable to our Real Estate Franchise Services segment, net of volume incentives achieved. The net effective royalty rate does not include the effect of non-standard incentives granted to some franchisees.

 

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Prior to 2006, the average homesale broker commission rate was declining several basis points per year, the effect of which was more than offset by increases in homesale prices. From 2007 through the first quarter of 2011, the average broker commission rate remained fairly stable; however, we expect that, over the long term, the modestly declining trend in average brokerage commission rates will continue.

The net effective royalty rate has been modestly declining over the past three years. We would expect that, over the near future, the net effective royalty rate will continue to modestly decline due to an increased concentration of business in larger franchisees which earn higher volume rebates as well as our focus on strategic growth through relationships with larger established real estate companies. The net effective rate can also be affected by a shift in volume amongst our brands which operate under different royalty rate arrangements.

Our Company Owned Real Estate Brokerage Services segment has a significant concentration of real estate brokerage offices and transactions in geographic regions where home prices are at the higher end of the U.S. real estate market, particularly the east and west coasts, while our Real Estate Franchise Services segment has franchised offices that are more widely dispersed across the United States. Accordingly, operating results and homesale statistics may differ between our Company Owned Real Estate Brokerage Services segment and our Real Estate Franchise Services segment based upon geographic presence and the corresponding homesale activity in each geographic region.

Within our Relocation Services segment, we measure operating performance using the following key operating statistics: (i) initiations, which represent the total number of transferees we serve and (ii) referrals, which represent the number of referrals from which we earn revenue from real estate brokers. In our Title and Settlement Services segment, operating performance is evaluated using the following key metrics: (i) purchase title and closing units, which represent the number of title and closing units we process as a result of home purchases, (ii) refinance title and closing units, which represent the number of title and closing units we process as a result of homeowners refinancing their home loans, and (iii) average price per closing unit, which represents the average fee we earn on purchase title and refinancing title sides.

The decline in the number of homesale transactions and the decline in homesale prices has and could continue to adversely affect our results of operations by: (i) reducing the royalties we receive from our franchisees and company owned brokerages, (ii) reducing the commissions our company owned brokerage operations earn, (iii) reducing the demand for our title and settlement services, and (iv) reducing the referral fees we earn in our relocation services business. Our results could also be negatively affected by a decline in commission rates charged by brokers.

 

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The following table presents our drivers for the three months ended March 31, 2011 and 2010. See “Results of Operations” for a discussion as to how the key drivers affected our business for the periods presented.

 

     Three Months Ended March 31,  
     2011      2010      %
Change
 

Real Estate Franchise Services (a)

        

Closed homesale sides

     184,643         193,340         (4%

Average homesale price

   $ 193,710       $ 188,478         3%   

Average homesale broker commission rate

     2.54%         2.55%         (1 bps

Net effective royalty rate

     4.87%         5.04%         (17 bps

Royalty per side

   $ 251       $ 252         —  %   

Company Owned Real Estate Brokerage Services

        

Closed homesale sides

     51,200         52,532         (3%

Average homesale price

   $ 414,164       $ 417,782         (1%

Average homesale broker commission rate

     2.50%         2.48%         2 bps   

Gross commission income per side

   $ 11,188       $ 11,161         —  %   

Relocation Services

        

Initiations (b)

     35,108         32,429         8%   

Referrals (c)

     12,812         12,109         6%   

Title and Settlement Services

        

Purchase title and closing units

     18,971         19,947         (5%

Refinance title and closing units

     16,826         11,935         41%   

Average price per closing unit

   $ 1,386       $ 1,353         2%   

 

(a) Includes all franchisees except for our Company Owned Real Estate Brokerage Services segment.
(b) Includes Primacy initiations of 7,712 for the three months ended March 31, 2011 and 5,177 for the period January 21, 2010 (date of acquisition) through March 31, 2010.
(c) Includes Primacy referrals of 968 for the three months ended March 31, 2011 and 716 for the period January 21, 2010 (date of acquisition) through March 31, 2010.

The following table presents our drivers for the years ended December 31, 2010, 2009 and 2008. See “Results of Operations” for a discussion as to how the key drivers affected our business for the periods presented.

 

     Year Ended December 31,     Year Ended December 31,  
     2010      2009      %
Change
    2009      2008      %
Change
 

Real Estate Franchise Services (a)

                

Closed homesale sides

     922,341         983,516         (6%     983,516         995,622         (1%

Average homesale price

   $ 198,076       $ 190,406         4%      $ 190,406       $ 214,271         (11%

Average homesale broker commission rate

     2.54%         2.55%         (1 bps     2.55%         2.52%         3 bps   

Net effective royalty rate

     5.00%         5.10%         (10 bps     5.10%         5.12%         (2 bps

Royalty per side

   $ 262       $ 257         2%      $ 257       $ 287         (10%

Company Owned Real Estate Brokerage Services

                

Closed homesale sides

     255,287         273,817         (7%     273,817         275,090         —  %   

Average homesale price

   $ 435,500       $ 390,688         11%      $ 390,688       $ 479,301         (18%

Average homesale broker commission rate

     2.48%         2.51%         (3 bps     2.51%         2.48%         3 bps   

Gross commission income per side

   $ 11,571       $ 10,519         10%      $ 10,519       $ 12,612         (17%

Relocation Services

                

Initiations (b)

     148,304         114,684         29%        114,684         136,089         (16%

Referrals (c)

     69,605         64,995         7%        64,995         71,743         (9%

Title and Settlement Services

                

Purchase title and closing units

     94,290         104,689         (10%     104,689         110,462         (5%

Refinance title and closing units

     62,225         69,927         (11%     69,927         35,893         95%   

Average price per closing unit

   $ 1,386       $ 1,317         5%      $ 1,317       $ 1,500         (12%

 

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(a) Includes all franchisees except for our Company Owned Real Estate Brokerage Services segment.
(b) Includes initiations of 26,087 for the year ended December 31, 2010, related to the Primacy acquisition in 2010.
(c) Includes referrals of 4,997 for the year ended December 31, 2010, related to the Primacy acquisition in 2010.

The following table represents the impact of our revenue drivers on our business operations.

LOGO

The following table sets forth the impact on segment EBITDA for the year ended December 31, 2010 assuming actual homesale sides and average selling price of closed homesale transactions, with all else being equal, increased or decreased by 1%, 3% and 5%.

 

     Homesale
Sides/Average
Price (1)
                                        
        Decline of     Increase of  
        5%     3%     1%     1%      3%      5%  
     (units and price
in thousands)
     ($ in millions)  

Homesale sides change impact on:

                 

Real Estate Franchise Services (2)

     922 sides       ($ 12   ($ 7   ($ 2   $ 2       $ 7       $ 12   

Company Owned Real Estate
Brokerage Services (3)

     255 sides       ($ 45   ($ 27   ($ 9   $ 9       $ 27       $ 45   

Homesale average price change impact on:

                 

Real Estate Franchise Services (2)

   $ 198       ($ 12   ($ 7   ($ 2   $ 2       $ 7       $ 12   

Company Owned Real Estate
Brokerage Services (3)

   $ 436       ($ 45   ($ 27   ($ 9   $ 9       $ 27       $ 45   

 

(1) Average price represents the average selling price of closed homesale transactions.
(2) Increase (decrease) relates to impact on non-company owned real estate brokerage operations only.
(3) Increase (decrease) represents impact on company owned real estate brokerage operations and related intercompany royalties to our real estate franchise services operations.

 

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RESULTS OF OPERATIONS

Discussed below are our condensed consolidated results of operations and the results of operations for each of our reportable segments. The reportable segments presented below represent our operating segments for which separate financial information is available and which is utilized on a regular basis by our chief operating decision maker to assess performance and to allocate resources. In identifying our reportable segments, we also consider the nature of services provided by our operating segments. Management evaluates the operating results of each of our reportable segments based upon revenue and EBITDA. Our presentation of EBITDA may not be comparable to similarly-titled measures used by other companies. As discussed above under “Industry Trends,” our results of operations are significantly impacted by industry and economic factors that are beyond our control.

Three Months Ended March 31, 2011 vs. Three Months Ended March 31, 2010

Our consolidated results comprised the following:

 

    Three Months Ended
March 31,
 
        2011             2010             Change      

Net revenues

  $ 831      $ 819      $ 12   

Total expenses(1)

    1,067        1,011        56   
                       

Net loss before income taxes, equity in earnings and noncontrolling interests

    (236     (192     (44

Income tax expense

    1        6        (5

Equity in earnings of unconsolidated entities

    —          (1     1   
                       

Net loss

    (237     (197     (40

Less: Net income attributable to noncontrolling interests

    —          —          —     
                       

Net loss attributable to Realogy and Holdings

  $ (237   $ (197   $ (40
                       

 

(1) Total expenses for the three months ended March 31, 2011 include $2 million of restructuring costs and $60 million related to the Refinancing Transactions, partially offset by $2 million of former parent legacy benefits. Total expenses for the three months ended March 31, 2010 include $6 million of restructuring costs and $5 million of former parent legacy costs.

Net revenues increased $12 million (1%) for the first quarter of 2011 compared with the first quarter of 2010 principally due to an increase in revenues for the Title and Settlement Services segment due to higher refinance and title insurance premiums and Relocation Services segment due to volume increases partially offset by decreases in homesale transaction volume at the Real Estate Franchise Services segment and Company Owned Real Estate Brokerage Services segment.

Total expenses increased $56 million (6%) primarily due to:

 

   

the impact of the Refinancing Transactions which resulted in a $36 million loss on the early extinguishment of debt as well as an increase in interest expense of $17 million as a result of the de-designation of interest rate swaps and $7 million due to the write-off of financing costs; and

 

   

an $8 million increase in operating, marketing and general and administrative expenses

partially offset by a decrease of:

 

   

$7 million of former parent legacy costs;

 

   

$4 million in restructuring expenses; and

 

   

$4 million in depreciation expense.

The Company’s provision for income taxes in interim periods is computed by applying its estimated annual effective tax rate against the income (loss) before income taxes for the period. In addition, non-recurring or

 

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discrete items are recorded during the period in which they occur. No Federal income tax benefit was recognized for the current period loss due to the recognition of a full valuation allowance for domestic operations. Income tax expense for the three months ended March 31, 2011 was $1 million. This expense included $6 million for an increase in deferred tax liabilities associated with indefinite-lived intangible assets and $2 million was recognized for foreign and state income taxes for certain jurisdictions offset by a $7 million benefit due to the de-designation of the interest rate swaps.

Following is a more detailed discussion of the results of each of our reportable segments during the three months ended March 31:

 

         Revenues     EBITDA(b)      Margin  
         2011     2010     %
Change
    2011     2010     %
Change
     2011     2010     Change  

Real Estate Franchise Services

   $ 118      $ 122        (3 %)    $ 62      $ 65        (5%)         53%        53%        —     

Company Owned Real Estate Brokerage Services

     587        601        (2     (37     (34     (9)         (6)        (6)        —     

Relocation Services

     87        76        14        10        4        150          11                6   

Title and Settlement Services

     83        65        28        2        (5     (140)                (8)        10   

Corporate and Other(a)

     (44