IPO / M&AMortgage

Cash is king: UWM raises $800M in debt offering ahead of IPO

Wholesale giant will use liquidity to firm up balance sheet ahead of public debut

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Just weeks away from its anticipated $16.1 billion IPO, United Wholesale Mortgage (UWM) closed on the sale of $800 million in senior notes.

The bond sale, which closed this week, gave the Detroit-based mortgage giant $791 million in proceeds. The notes are due in 2025 and sold at a 5.5% coupon.

The liquidity is on top of a commitment in the form of a $500 million private placement and $425 million in cash held by the special purpose acquisition company (SPAC) UWM is merging with, Gores Holdings IV.

“The primary benefit is going to be for cash on the balance sheet and some tax obligations,” said Alex Elezaj, UWM’s chief strategy officer. “It will help us with servicing and retaining servicing so that is one strategic benefit to it, but we’re looking at it holistically, not just one particular area.”

In the run up to the IPO, CEO Mat Ishbia has said that he’s had to decide whether to spend the company’s cash on developing tech or retaining servicing. He chose tech.

Record origination volume and newfound access to cash has made that strategy moot. In the third quarter, UWM increased MSR from $924 million to $1.41 billion. It also increased its cash-on-hand to $756 million from $570 million in the prior quarter, and increased equity by $556 million to $2 billion.

UWM’s march toward an IPO comes amid a period of increased volatility in the stock market. Guild Mortgage got creamed in its debut late last month, and Rocket Companies‘ stock last week fell below its debut price before climbing again this week.

Poor conditions led private equity-backed Caliber Home Loans and AmeriHome to delay their IPOs, but UWM is still on track to debut in the fourth quarter.

“We’ve always made money and we’ve always done very well and every company can’t say that,” said Elezaj. “So I think when investors look at our company they saw a wonderful opportunity and a strong company that is going to continue to grow.”

UWM also pledged to issue a $0.40-per-share annual dividend to investors once the company is publicly traded.

“Upon becoming a public company, we intend to continue to manage toward the long term by investing in our business as we have always done in the past, but we also intend to leverage the company’s consistent and significant free cash flow to enhance stockholder value creation,” Ishbia said in a statement. 

To date, the other IMBs on the IPO train have largely declined to commit to issuing dividends.

UWM is one among many IMBs that are tapping the debt markets during a year in which an estimated $4 trillion in originations are expected to be issued. LoanDepot, which is also flirting with a public debut, issued $500 million in debt in October, upsizing from a $400 million planned offering. Finance of America similarly is selling $350 million in unsecured debt at around 8%.

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