UWM Holdings has gone ahead and sued Two Harbors Investment over their failed merger transaction as alluded to by Mat Ishbia, chairman, CEO and president, on last week's earnings call.
The filing, which HousingWire reported on earlier, was made in the U.S. District Court of Maryland and alleges willful breach of contract and fraud, according to a copy National Mortgage News obtained.
The Pontiac, Michigan-based company is seeking to recover more than $500 million in alleged damages it claimed were created by Two Harbor's "willful breaches of contract and cover-up."
Why is UWM suing?
UWM
As a result, other companies submitted bids for Two Harbors and an
The legal filing claimed UWM had almost achieved stockholder approval for its transaction when Two Harbors terminated the agreement.
After a bidding war, which included UWM making an all-cash alternative offer of $12.50 per share, Two Harbors stockholders ultimately approved the CrossCountry Mortgage final offer of $12 per share.
In
"Now, the Two Harbors transaction, you know, it definitely was unfortunate how it happened, and you'll see some litigation and some things that they did inappropriately, and we'll go through that process when that time comes," Ishbia said on UWM's second quarter earnings call.
The legal filing also doesn't mince words.
"But TWO's management then had a change of heart about selling to UWM," the document said. "Driven by pride, greed, and self-interest, TWO sabotaged the process, causing UWM to lose the lucrative business opportunity it had identified, pursued, and contracted to receive."
UWM alleged Two Harbors CEO William Greenberg, along with Rebecca Sandberg, chief legal officer, engaged in a "stealth mission" to get the deal canceled, including subverting the March shareholder vote.
The suit also
National Mortgage News made requests to all three companies. CrossCountry had no further comment. The others had not responded by press time.
What is happening with the Cross-Country-Two Harbors merger
The CrossCountry-Two Harbors merger
Fitch Ratings said it expects to rate a CrossCountry Intermediate Holdco $500 million senior unsecured note offering at BB-(EXP), a speculative grade rating.
This issuance is expected to coincide with the acquisition's close and proceeds are to be used to repay borrowing on mortgage-backed securities facilities which CrossCountry is drawing upon to fund the deal.
"The unsecured notes are expected to rank pari passu with CCM's existing senior unsecured debt, and therefore the expected rating is equalized with its outstanding senior unsecured debt and long-term issuer default rating," the report said. "The equalization with the IDR reflects Fitch's expectation for average recovery prospects in a stressed scenario given the availability of unencumbered assets."
Fitch estimates the deal will give privately held CrossCountry a total leverage ratio of 5.3 times and corporate leverage of 2.4 times. For the second quarter, this was 4 times and 1.2 times respectively.
The projected corporate leverage exceeds Fitch's downgrade trigger of 1.5 times.
"However, retained earnings growth should reduce leverage towards the company's 1 times target over the medium term," Fitch said. "Negative rating action could result from an inability to reduce corporate leverage to 1.5 times or below over the rating outlook horizon."
Even so, the rating agency said this deal is good for CrossCountry as Two Harbors will "further enhance" the "business profile by growing its servicing portfolio and enabling more profitable in-house servicing via the RoundPoint platform."
