Key facts
- UWM reported a Q2 net loss of $451.9 million.
- The company secured a $2.05 billion capital raise from Oaktree Capital Management and the Ishbia family.
- A $400 million rights offering is also part of the capital raise.
- UWM suspended its common dividend to focus on deleveraging.
- The company plans to use the capital to repay debt and MSR financing facilities.
United Wholesale Mortgage (UWM) has announced a significant $2.05 billion capital raise, comprising $1.65 billion in preferred equity and a $400 million rights offering. The preferred equity includes $1.5 billion from Oaktree Capital Management and $150 million from the Ishbia family, positioning Oaktree as a strategic partner with board representation. This move follows a reported net loss of $451.9 million in the second quarter, despite a 133 basis point gain-on-sale margin.
The company plans to utilize the raised capital to repay its 2027 senior notes and MSR financing facilities, aiming to reduce its leverage ratio from 5.6x to 1.2x. The preferred equity carries a 10% cash coupon, increasing to 13% if paid in kind, with a liquidation preference that grows annually. Analysts from BTIG noted that UWM is paying a premium to deleverage, while Keefe, Bruyette & Woods (KBW) estimated the preferred financing could result in approximately 55% dilution to common shareholders.
UWM's Q2 results were also impacted by a $603 million loss on interest rate derivatives used to hedge a potential acquisition of Two Harbors Investment Corp.'s MSR book. This hedge loss, equivalent to $0.16 per share, contributed to the GAAP miss. CEO Mat Ishbia stated that the market moved against the hedge and that such an event is unlikely to recur. The company has also suspended its common dividend to prioritize equity building and deleveraging.
Ishbia emphasized the strategic nature of the partnership with Oaktree, highlighting their expertise in MSRs and capital markets. He also addressed concerns about dilution from warrants included in the preferred equity deal, noting that the average strike price of $4 is significantly above the current stock trading level. The failed acquisition of Two Harbors was also discussed as a factor that influenced the timing and structure of the Oaktree partnership.