UWM Holdings Corp., parent of United Wholesale Mortgage (UWM), has set the terms for a rights offering expected to bring in at least $400 million, the company announced Tuesday.
The offering is part of the lender’s $2.05 billion capital raise with Oaktree Capital Management and the Ishbia family (through investment vehicle SFS Group Capital LLC) announced in August.
In total, the company is offering 200 million new Class A shares at a subscription price equal to the greater of $2 per share or 85% of the volume-weighted average price of UWM’s Class A stock over the 10 trading days from Oct. 27 through Nov. 9.
The distribution of the rights is expected to begin Oct. 5.
If the rights offering does not generate at least $400 million in gross proceeds, the Oaktree investors have the option and the Ishbia parties have the obligation to purchase additional securities from UWM to cover the unfunded portion.
The backstop securities can be issued either as Class A common stock at the same subscription price as the rights offering or as junior perpetual non-convertible preferred stock plus an equal amount of warrants. The warrants would allow the purchase of an aggregate number of Class A shares equal to 20% of the initial liquidation preference of the preferred stock, mirroring the structure of the August preferred investment.
In the earlier transaction, Oaktree invested $1.5 billion, and SFS Group invested $150 million, for a total of $1.65 billion. The move came as UWM lost its bid to acquire Two Harbors Investment Corp. to CrossCountry Mortgage (CCM), when its leverage was pointed out as an issue by analysts. It also followed a $603 million loss on interest rate derivatives, which the company tied to hedging the Two Harbors MSR portfolio.
Market observers note that UWM’s common stock has recently traded well below the $2 floor price – it closed at $1.26 on Wednesday – which may affect investors’ appetite.
“With the common shares trading well below $2, we think that the rights offering is unlikely to be successful unless there is a meaningful change in the market backdrop and interest rates fall materially,” Keefe, Bruyette & Woods analysts said in a report on Wednesday.
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As a result, we believe the $400 million will be funded by either Oaktree or SFS.
This funding will be in the form of a preferred investment.
