UWM Q2 Earnings Call Highlights

UWM reported more than $180 million in adjusted EBITDA and approximately $40 billion in second-quarter business volume. The company also plans to suspend its regular dividend to retain capital and strengthen liquidity. UWM proposed a capital partnership with Oaktree involving a $1.5 billion investment, plus up to $550 million from its largest shareholder. The company expects the transaction to raise total equity to roughly $3 billion and reduce its non-funding debt-to-equity ratio from about 5.6 times to approximately 1.2 times.

A failed Two Harbors transaction and related hedging losses weighed on second-quarter results, but management characterized the setback as transaction-specific. UWM remains focused on mortgage origination, while expanding in-house servicing and positioning for stronger housing and refinancing conditions.

UWM NYSE: UWMC said it generated more than $180 million in adjusted EBITDA and approximately $40 billion of business during the second quarter, while outlining a proposed capital partnership with Oaktree and plans to suspend its regular dividend. During a shareholder question-and-answer session, company leadership said the Oaktree transaction is intended to strengthen UWM’s balance sheet, add strategic mortgage-market expertise and position the company for what it expects to be a stronger housing and mortgage environment in the coming years.

UWM described Oaktree as more than a source of capital, citing the firm’s experience in mortgage servicing rights, non-agency mortgage markets and capital markets. UWM said Oaktree shares its view of the independent mortgage broker channel and the infrastructure UWM has built to support brokers. The company said the transaction represents a capital raise of more than $2 billion, including a $1.5 billion investment from Oaktree and a commitment of up to $550 million from UWM’s largest shareholder. UWM said the capital raise would increase total equity to roughly $3 billion.

Management said the transaction would reduce its non-funding debt-to-equity ratio to about 1.2 times from more than 5 times at the end of the second quarter, when it said the ratio reached approximately 5.6 times following hedge-related losses. UWM said the expected 1.2-times ratio would be below what it characterized as industry norms of roughly 1.5 to 2 times.

UWM said it chose preferred equity with warrants rather than a large common-stock issuance because issuing common shares at prevailing trading levels would have created immediate dilution. The company acknowledged that the warrants would be dilutive if exercised, but said it viewed the structure as balancing capital needs with long-term shareholder upside. UWM said 165 million warrants have an exercise price of $2 per share. Another 165 million warrants have an exercise price of $6 per share. The company said the average warrant exercise price is about $4 per share.

Management said Oaktree’s preferred investment carries a 10% coupon. It also said the capital transaction is expected to reduce interest expense by roughly $100 million through the repayment of MSR-related lines and other obligations, though the preferred dividend expense means the financing is not simply an interest-cost reduction.

UWM said it is suspending its dividend to retain equity and earnings following the capital raise. Management framed the decision as one of capital allocation, saying liquidity and equity are priorities as the company seeks to expand its business and improve leverage metrics.