Key facts
- Fitch Ratings downgraded UWM's long-term issuer default ratings to B+ from BB-.
- The downgrade was driven by a significant increase in UWM's corporate leverage to 6.1x in Q2.
- UWM reported a net loss of $451.9 million for the second quarter.
- A $2.05 billion strategic capital partnership was announced with SFS Group Capital and Oaktree Capital Management.
- Fitch will classify a planned $1.65 billion preferred stock issuance as debt, not equity.
Fitch Ratings has downgraded United Wholesale Mortgage (UWM) to B+ from BB- following a significant increase in leverage and a second-quarter net loss. The agency cited UWM's corporate leverage ratio, measured as gross nonfunding debt to tangible equity, which jumped to 6.1x at the end of the second quarter from 3.2x at the end of the first quarter. This increase was attributed to higher borrowings for originations and operations, as well as a $603 million hedging loss incurred when CrossCountry Mortgage outbid UWM for Two Harbors Investment Corp.'s mortgage servicing rights.
UWM reported a net loss of $451.9 million for the second quarter. Concurrently, the company announced a $2.05 billion strategic capital partnership involving the Ishbia family's new vehicle, SFS Group Capital, and Oaktree Capital Management. This partnership includes a $400 million common stock offering. UWM's CEO, Mat Ishbia, indicated that this capital raise is expected to reduce leverage from 5.6x to 1.2x.
Fitch stated it will treat a planned $1.65 billion issuance of perpetual preferred stock to Oaktree and the Ishbia family as debt, not equity, due to features like coupon-deferral constraints and incentives for redemption. Despite the downgrade, Fitch affirmed that UWM's market position, franchise, adequate liquidity, servicing asset quality, technology platform, and experienced management team continue to support its ratings.