Better is 'building long-term value for shareholders,' CFO says

Online mortgage lender Better (BETR) shares plummet after going public on Thursday. Kevin Ryan, Better President & CFO, joins Yahoo Finance Live to discuss the company's public debut, its SPAC merger with Aurora Acquisition Corp (AURC), and the outlook for the company.

Ryan spoke about why the deal made sense for the company now despite this being a poor time for mortgage lenders. The Better President & CFO said, "Were there other deals possible? Yes. Were any as attractive as this deal? ... We thought this was just simply the best answer."

Video Transcript

AKIKO FUJITA: Online mortgage lender Better plummeting today after its public debut on the NASDAQ this morning. There you have it down more than 90% in the session. The share price was $10 at the open.

The public offering coming via SPAC merger with Aurora Acquisition Corp. The digital home ownership company offers mortgage and insurance services to prospective buyers. Their listing comes at a tough time for the housing market though plagued by high interest rates and low inventory.

For more on this, we turn to Better President and CFO Kevin Ryan. Kevin, a tough debut by all accounts here when you're talking about your stock down more than 90%. What do you think happened? Was it mispriced?

KEVIN RYAN: Well, Akiko, thank you for having me first and foremost. Look, I don't think we're going to talk about price or focus on price. I think if we just focus on the deal first, we struck this deal in May of 2021.

It was clearly a much better time in the mortgage market. It was a much better time for SPACs. It was a much better time in the capital markets, much lower interest rates, better for fintech. So clearly, SPACs are different than traditional IPOs.

We worked very hard on this deal. We announced it in May of 2021. We worked on it throughout the winter of '21, the spring of '21. We announced it in May and we stuck with it.

It took us a long time. It took us over two and a half years to close this deal from really start to finish, but we stuck with it. And so for us, the most important thing is we're a mission-driven company. We're a digitally native company. And we think ultimately over time-- and I just heard you talking about real estate-- the real estate industry, like most consumer finance industries, is going to go digital and transform from the analog way real estate's been done.

And so for us, we put $560 million of capital on our balance sheet at probably the worst possible time in the mortgage cycle. And so there's 4,000 mortgage lenders in the United States. If rates stay, you know, higher for longer-- and a lot of the talk out of Jackson Hole is higher for longer-- I think a lot of those companies are going to struggle. And many may go out of existence. And we just shored up our balance sheet at a time when nobody really thought anybody in this sector could.

So this is $568 million of cash clearly out a 2021 valuation and the stock is way down today. We're not surprised. We're building long-term value for shareholders. And we're trying to, you know, disrupt the consumer industry over time and we think this is just the beginning.

SEANA SMITH: You know, Kevin, I think a lot of people are asking why now given all the reasons that you just listed? Was it the only option? Walk us through, I guess, how you evaluated why this still made a lot of sense for the company.

KEVIN RYAN: Sure. We thought about that a lot. As you would guess over a two and a half year period, as we work through with the SEC, as we work through our investors, we thought about this a lot. Is this the best answer for the company?

We raised $568 million of capital at minimum dilution to our shareholder. As a management team, our duty is a fiduciary duty to the shareholders to get the best deal possible. So where there other deals possible? Yes.

Where any of it as attractive as this deal on the economic terms of what it means for the corporation and the balance sheet? All of that cash is coming directly to the company. No shareholders are cashing out as part of the proceeds of this deal. We thought this was just simply the best answer.

We raised convertible debt financing at roughly an $8 strike price, stock's at $1 as you pointed out, and a 1% interest rate. The Treasury rates are five times that now. So the terms of this deal were just so attractive that we decided to stick with it, have grit, and go after it, and we got it done.

AKIKO FUJITA: So Kevin, let's, sort of, turn to what the medium-term outlook is. I mean, we've already established this is a very tough time for the market that you are competing in. I mean, what's your expectation right now as we look ahead to where rates are likely to go a year from now? I mean, we have heard multiple analysts come on and say, look, those rate cuts aren't coming, that we are going to remain at these levels for a long time. What does that mean for a business like Better?

KEVIN RYAN: Well, it means two things. I think it means that earnings could stay depressed for some time. If rates stay high, I think that's the reality for Better and for any company we compete with in this space. I think it means that the strong will get stronger because they actually have the capital to see it through the cycle. We've put ourselves in a position to be right there, one of the best five-- best capitalized mortgage companies, non-bank mortgage companies in the industry already overnight as a result of this deal. So I think it may mean you have more time to invest in the business.

We're going to take some of the proceeds of this deal and we're going to reinvest in Tinman, which is our homegrown digital offering. It's our homegrown technology that we built from ground up. We're going to invest in that.

We'll invest a little bit in marketing. We're going to diversify the revenue stream of the business to take some, but clearly not all the cyclicality out of the company. And we're going to do that over the next couple of years.

So would we be positively correlated to lower rates? Of course. And if rates come down we feel very well positioned to take advantage of that. We drove $58 billion of volume in 2021. And we only did $5 billion of volume in 2019, so we grew the company from $5 billion to $58 billion in a year and a half.

And if rates come down, we'll go after and do it again. And if rates stay up, we'll stay prudent. We'll be stewards of shareholders capital. We'll reinvest back in the business and we'll be the best prepared for the other side.