Real Estate
Home›Real Estate›Mortgages›UWM rating cut to B+ as leverage rises after Q2 losses
UWM rating cut to B+ as leverage rises after Q2 losses
Fitch cited UWM’s corporate leverage jumping to 6.1x in Q2 from 3.2x in Q1, and said planned preferred issuance will be treated as debt under its criteria.
Fitch Ratings downgraded United Wholesale Mortgage’s long-term issuer default rating to B+ from BB-, citing a sharp rise in leverage after second-quarter losses and higher borrowings, HousingWire reports.
Fitch said UWM’s gross nonfunding debt to tangible equity, a measure of corporate leverage, increased to 6.1x at the end of Q2 from 3.2x at the end of Q1. The agency said it expects leverage to remain above the previous downgrade trigger of 2.0x over the outlook horizon and noted that common dividends were suspended.
HousingWire reports that Fitch tied the downgrade to increased borrowings used to fund originations and operations, and also linked it to a $603 million hedging loss in the quarter. UWM said the hedging effort was aimed at protecting its portfolio in connection with a potential acquisition of Two Harbors Investment Corp’s mortgage servicing rights book, though CrossCountry Mortgage won the bid.
After reporting a net loss of $451.9 million for Q2, UWM also announced a $2.05 billion strategic capital partnership with Oaktree Capital Management, including a $400 million common stock offering. Fitch said it will treat planned issuance of $1.65 billion of series A perpetual preferred stock to Oaktree and the Ishbia family as debt, with coupons paid in cash after year five and potential triggers if liquidity, tangible net worth, or warehouse covenants deteriorate.