Dan Gilbert, founder of Quicken Loans, the largest mortgage lender in the US, will retain complete control of the company following its initial public offering, even as the cash proceeds of the flotation flow into a private entity under his control.
According to a regulatory filing released on Tuesday, Quicken intends to sell class “A” shares, which will have one vote apiece, to the public. After the offering, Rock Holdings, a company controlled by Mr Gilbert, will have enough of the class “D” shares, with 10 votes each, to control 79 per cent of the voting power in the company.
This will mean Mr Gilbert can “control any action requiring the general approval of our stockholders, including the election of our board of directors”, according to the filing. The entire IPO proceeds will be used to buy class “D” shares and other stock units from Rock Holdings.
How much Rock and Mr Gilbert will net from the sale will depend on investors’ appetite for backing a mortgage lender at a time of significant economic upheaval in the US. A placeholder figure in the prospectus said it would raise $100m, though the amount is likely to be much more.
In the first quarter of 2020, the company originated $52bn in mortgage loans, more than double the year before — translating to $1.4bn in revenues and net income of $97m, compared to a loss the year before.
Many non-bank mortgage lenders faced a liquidity crunch earlier this year as millions of Americans accepted payment forbearance on their mortgages. This left mortgage lenders, who act as servicers for loans even if the loans have been sold on to investors, on the hook for billions in mortgage payments for up to six months.
But the liquidity crunch has been followed by a period of exceptionally high profits for the industry, as falling interest rates and the corresponding rush of demand for refinancing have driven revenues and margins up across the industry. Experts say companies with access to ample funding, such as the large and profitable Quicken, have been able to take share from weaker rivals.
In 2019, Quicken originated $145bn in loans, a 75 per cent increase over 2018. It had $893m in net income that year, representing growth of 46 per cent.
As of March 30, Quicken had $2.3bn in cash on its balance sheet, along with $2.2bn in long term debt, and held $12.8bn in mortgages funded with short-term debt.
Several industry executives said last month that a successful IPO from Quicken could open the way for other privately held non-bank lenders to raise capital. “Non-banks might be thinking, we are having a phenomenal quarter [so] this might be a good time to tell my story to public markets,” Sanjiv Das, chief executive of Caliber Home Loans, another private mortgage lender, told the Financial Times.
The listing would also mark a milestone for Mr Gilbert, a billionaire who owns the Cleveland Cavaliers basketball team and has poured billions of dollars into projects to revitalise Detroit, the largest city in Michigan.
Mr Gilbert, who founded the company in 1985, is recovering from a stroke he suffered a year ago that temporarily paralysed his left arm and leg.
The underwriters on the IPO are Goldman Sachs, Morgan Stanley, Credit Suisse, JPMorgan, RBC, and Siebert Williams Shank.