When Mat Ishbia's mortgage lender was hit with sizable losses from soured hedges earlier this year, he phoned Oaktree. This time, the Los Angeles firm did not extend a loan. It bought $1.5 billion of UWM preferred stock, taking an equity position that comes with rich dividends and a long list of protections. The package includes 1.5 million preferred shares and warrants that can be exercised between $2 and $6 per share.
Those preferreds are built to generate at least $150 million a year in dividends. Ishbia put in $150 million of his own money alongside Oaktree. Seven years from now, if Oaktree still owns 25% of the position, the firm would hold most of the board seats and could evaluate strategic options.
If the stock climbs, the warrants offer another path to cashing in. Representatives for both UWM and Oaktree declined to comment.
This is not their first dance. Oaktree previously helped UWM after a botched hedge in 2020, prior to the lender going public.
Structured equity is increasingly the go-to for companies that need cash without issuing conventional debt. These tailor-made deals often mix preferred shares with lender protections and contractual dividends, and they typically are not intended to be permanent capital. Investors frequently add penalties or higher rates over time to prompt a takeout.
The appeal is clear for private credit and distressed investors. Returns can reach into the mid-teens, but if a business fails, these investors fall in behind other creditors.
Higher rates and a sluggish deal market have left private equity managers holding assets they cannot or will not sell, which makes handing cash back to investors tougher. Structured equity can unlock liquidity without forcing a sale or stacking on new debt. At $1.5 billion, Oaktree's UWM check is unusually large for a single lender, and firms like Apollo Global Management Inc., Sixth Street and Bain Capital have been stepping up preferred-equity deals too. As attorney Zachary Darrow put it, preferred-equity strategies are "a creative way to stay on top of certain players in the capital stack while still staying entrepreneurial."
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Oaktree, Howard Marks' Los Angeles-based firm, planted its first mezzanine debt fund roughly two decades ago. In a 2024 memo, Marks laid out the fork in the road for hybrid investments: "We could put our primary emphasis on protecting principal and treat the equity aspect as an attractive possible fillip, or we could be more venturesome and pursue situations where the equity is expected to pay off dramatically." He said the firm chose the first path, highlighted a 9.3% average internal rate of return, and called the approach "pure Oaktree."
Even with that guardrail, Oaktree has broadened its toolkit as borrowers hunt for liquidity and lenders lean into financial engineering. In 2018, Oaktree proposed a preferred-equity structure for Montrose Environmental Group, which had tapped out its debt and was looking at private equity. The structure aimed for mid-teens returns and allowed existing holders to keep their stakes as the company prepared for an IPO. It started at just under $200 million, later growing to nearly $400 million, before Montrose went public in 2020.
Oaktree also stepped in for UWM in 2020 after a misfired hedge. People familiar with the matter say Oaktree provided $300 million of debt carrying a 15.5% coupon, backed by the mortgage lender and secured against the parent's stake. Those people said it was paid back in roughly four months at an apparent 1.5 times Oaktree's initial investment.
In 2022, Oaktree acquired a majority interest in 17Capital, a London firm that specializes in preferred equity and net-asset-value lending. And in 2024, its two-step rescue of Los Angeles brokerage B. Riley showed how flexible these structures can be. Oaktree bought control of B. Riley's Great American division and pegged the company's value at $386 million.
The cash allowed B. Riley to hold on to part of a business it viewed as promising while affording Oaktree substantial control. A few months later, Oaktree provided B. Under the deal, Oaktree was given a first-out right - placing it ahead of others for repayment - and warrants tied to more than 1.8 million common shares. Filings indicate that, at today's prices, Oaktree has earned more than $3.4 million in profits, on top of the coupon income.
Oaktree appears keen to do more with companies eyeing near-term IPOs, according to one person familiar with the firm's thinking, tapping founders who need capital but are reluctant to shrink their stakes.
Here is the simple idea in play. Write a check that generates steady cash today, add upside if the stock cooperates tomorrow, and keep protections that nudge a clean exit. For owners, it is a way to raise money without selling or adding traditional debt.
For the investors providing it, the trade is straightforward - target mid-teens returns with some equity kicker, but accept that you are behind other creditors if things get ugly. UWM's setup shows the mix: sizable annual dividends, low-dollar warrants, and a path to board control after seven years if a quarter of the investment is still on the books.
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