Ishbia’s Mortgage Firm Suffers Record Drop on Dividend Halt
(Bloomberg) -- Shares in United Wholesale Mortgage fell by as much as 49% Thursday, a record slide after the country’s biggest mortgage lender announced a
(Bloomberg) -- Shares in United Wholesale Mortgage fell by as much as 49% Thursday, a record slide after the country’s biggest mortgage lender announced a net loss of $452 million and suspended its dividend for the first time. The company also announced a $2.05 billion equity capital investment by Oaktree Capital Management and SFS Group Capital, a new investment vehicle owned by Mat Ishbia, UWM’s chief executive officer, and his family. “We’re taking decisive action to make UWM stronger, more liquid and better positioned to win for years to come,” Ishbia said in a statement. “This is not just about capital. This is about bringing in a strategic partner that understands our business.” United Wholesale Mortgage grew rapidly during the pandemic, when lockdowns and low interest rates propelled a boom in the housing market. But in recent years, the firm has come under pressure as the housing market — and demand for new mortgages — has slowed dramatically. The stock was down 40% at 1:43 p.m. after earlier plunging as much as 49%, the biggest decline since the firm went public via a SPAC deal in 2021.
Shares are down 75% this year, extending a nearly two-year slide that’s wiped out billions in market value. The capital raise includes $1.65 billion from Oaktree and Ishbia immediately, plus a planned $400 million rights offering to shareholders. Most of the capital infusion is coming from Oaktree, structured as a purchase of both preferred stock and warrants. At closing, Oaktree will receive 1.5 million shares of preferred stock, which initially award a base annual dividend of at least 10%, or $150 million, although UWM can elect not to pay in cash, which would instead add to the shares’ principal value. If UWM chooses to redeem any of the preferred shares, the company would face a premium that will increase annually to as much as 60% over the shares’ value. If Oaktree still owns at least 25% of their preferred shares in seven years, the firm can take a majority of board seats and pursue the liquidation of the company, according to a filing.
Oaktree also secured a series of warrants with exercise prices ranging from $2 to $6 per share. Through a newly formed holding company, Ishbia — who is the majority owner of the NBA’s Phoenix Suns — also purchased warrants and preferred stock. Oaktree’s warrants, if exercised in full, would represent about 18% of UWM’s equity, according to Bloomberg calculations. On Thursday’s earnings call, Ishbia said his first instinct was to personally inject capital. “My background has always been, hey, I’ll just do it myself,” he said. “We don’t really bring outside parties in. And that was really the path we were going until we started having some in depth conversations with Oaktree.” Merger Attempt An earlier attempt by Ishbia to bolster UWM fizzled earlier this year. After a monthslong fight to buy mortgage servicer Two Harbors Investment Corp., an acquisition that would have diversified UWM’s revenue stream significantly, investors voted to accept an all-cash bid from another suitor. Despite the higher headline price of UWM’s offer, Two Harbors management lobbied against it, citing concerns about the value of the stock portion of the deal.
The BriefWire