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Acquisitions | 12 Months Ended
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Dec. 31, 2018
Business Combinations [Abstract] |
Acquisitions | 3. Acquisitions Acquisition of Nationstar Mortgage Holdings Inc. Upon the Merger with Nationstar on July 31, 2018, each share of Nationstar’s common stock issued and outstanding immediately prior to the Effective Time was converted into the right to receive, at the election of the holder of such share, (i) $18.00 per share in cash, without interest, or (ii) 12.7793 shares (prior to the 1-for-12 reverse stock split) of validly issued, fully paid and nonassessable shares of WMIH common stock (the “Merger Consideration”). The Merger Consideration was subject to automatic proration and adjustment pursuant to the Merger Agreement to ensure that the total amount of cash paid (excluding cash paid in lieu of fractional shares) equaled approximately $1,226. Pursuant to the Merger Agreement, immediately prior to the Effective Time, subject to certain exceptions, (i) each then-outstanding share of Nationstar restricted stock automatically vested in full and was converted into the right to receive the Merger Consideration, as elected by the holder, and (ii) each then-outstanding Nationstar restricted stock unit, whether vested or unvested, was automatically vested in full, assumed by WMIH and converted into a WMIH restricted stock unit entitling the holder thereof to receive upon settlement the Merger Consideration, as elected by the holder. Upon closing the Merger, all outstanding WMIH Series B Preferred Stock and all outstanding warrants to purchase shares of WMIH common stock were converted into WMIH common stock. Total purchase price was approximately $1,777, consisting of cash paid of $1,226 and transferred stock valued at $551. The purchase price was funded from available cash on hand and borrowings under senior unsecured notes (see discussion below). Prior to the acquisition, Nationstar was a publicly-held company that earned fees through the delivery of servicing, origination and transaction-based services related primarily to single-family residences throughout the United States. This acquisition marks the Company’s initial entry into the mortgage servicing industry that Nationstar operates in and is consistent with the Company’s business strategy. On July 13, 2018, Merger Sub closed the offering of $950 aggregate principal amount of 8.125% Notes due 2023 (the “2023 Notes”) and $750 aggregate principal amount of 9.125% Notes due 2026 (the “2026 Notes” and, together with the 2023 Notes, the “New Notes”). The proceeds from the New Notes were used, together with the proceeds from the issuance of the Company’s common stock and the Company’s cash and restricted cash on hand, to consummate the Company’s acquisition of Nationstar and the refinancing of certain of Nationstar’s existing debt and to pay related fees and expenses. At the consummation of the acquisition, Merger Sub merged with and into Nationstar, with Nationstar continuing as a wholly-owned subsidiary of the Company. After the Merger, Nationstar assumed all of Merger Sub’s obligations under the New Notes. The acquisition has been accounted for in accordance with ASC 805, Business Combinations, using the acquisition method of accounting. Under the acquisition method of accounting, the Company allocated the purchase price of the acquisition to identifiable assets acquired and liabilities assumed based on their estimated fair values as of the acquisition date. The Company recorded preliminary goodwill of $10, which represents the excess of the purchase price over the estimated fair value of tangible and intangible assets acquired, net of the liabilities assumed. The goodwill is primarily attributable to the assembled workforce and synergies from the future growth and strategic advantages in the mortgage industry. The entire preliminary goodwill is assigned to the Servicing segment and will not be deductible for tax purposes. The table below presents the calculation of aggregate purchase price.
Purchase Price |
Converted WMIH common shares in millions (prior to the 1-for-12 reverse stock split) | 394 |
Price per share, based on price of $1.398 for WMIH stock on July 31, 2018 (prior to the 1-for-12 reverse stock split) | $ | 1.398 |
Purchase price from common stock issued | 551 |
Purchase price from cash payment | 1,226 |
Total purchase price | $ | 1,777 |
The allocation of the fair value of the acquired business was based on preliminary valuations of the estimated fair value of the assets acquired and liabilities assumed. The determination of fair value estimates requires management to make certain estimates about discount rates, future expected cash flows, market conditions, and other future events that are highly subjective in nature and may require adjustments. The Company’s estimates are subject to change as the Company obtains additional information and finalizes its review of estimates during the measurement period (up to one year from the acquisition date). The primary areas of the preliminary allocation of fair value of consideration transferred that are not yet finalized relate to the fair value of reverse mortgage interests and related other nonrecourse debt, advances and other receivables and payables and accrued liabilities. Based on the preliminary allocation of fair value, goodwill of $10 has been recorded. The Company will record any adjustments to the preliminary fair value estimates in the reporting period in which the adjustments are determined. Fair value adjustments based on updated estimates could materially affect the goodwill recorded on the acquisition. The preliminary allocation of the purchase price to the acquired assets and liabilities is as follows:
Preliminary Estimated Fair Value of Net Assets Acquired |
Cash and cash equivalents | $ | 166 |
Restricted cash | 430 |
Mortgage servicing rights | 3,428 |
Advances and other receivables | 1,262 |
Reverse mortgage interests | 9,213 |
Mortgage loans held for sale | 1,514 |
Mortgage loans held for investment | 125 |
Property and equipment | 96 |
Derivative financial instruments | 64 |
Other assets | 546 |
Fair value of assets acquired | 16,844 |
Unsecured senior notes | 1,830 |
Advance facilities | 551 |
Warehouse facilities | 2,701 |
Payables and accrued liabilities | 1,361 |
MSR related liabilities—nonrecourse | 1,065 |
Mortgage servicing liabilities | 86 |
Derivative financial instruments | 3 |
Other nonrecourse debt | 7,583 |
Fair value of liabilities assumed | 15,180 |
Total fair value of net tangible assets acquired | 1,664 |
Intangible assets(1) | 103 |
Preliminary goodwill | 10 |
| $ | 1,777 |
(1) | The following intangible assets were acquired in the Nationstar acquisition:
| Useful Life (Years) |  | Fair Value
Customer relationships (i) | 6 |  | $ | 61 |
Tradename (ii) | 5 |  | 8 |
Technology (ii) | 3-5 |  | 11 |
Internally developed software(iii) | 2 |  | 23 |
Total |  |  | $ | 103 |
(i) | The estimated fair values for customer relationships were measured using the excess earnings method.
(ii) | The estimated fair values for tradename and technology were measured using the relief-from-royalty method. This method assumes the tradename and technology have value to the extent the owner is relieved of the obligation to pay royalties for the benefits received from these assets.
(iii) | The estimated fair values for internally developed software were measured using the replacement cost method.
The preliminary allocation of fair value in the third quarter of 2018 resulted in a $2 bargain purchase gain. The Company did not record the bargain purchase gain in the third quarter of 2018 because it has not completed its assessment of the re-consideration criteria as specified in ASC 805, Business Combinations, which is required to be performed prior to recording a bargain purchase gain. During the fourth quarter of 2018, the Company performed a lookback analysis of certain valuation inputs and related valuation results as part of its assessment of the re-consideration criteria. Based on the revised valuation and lookback analysis performed, the Company updated the estimated fair value of reverse mortgage interests, which resulted in a reduction of $12 in reverse mortgage interests with a corresponding adjustment to goodwill. In addition, the Company updated other assets and payables and accrued liabilities for the tax impact related to the reverse mortgage interests fair value adjustment and return to provision true up adjustments recorded in purchase accounting. As a result of these adjustments, the Company recorded goodwill of $10 as of December 31, 2018 after taking into the consideration of previously unrecognized bargain purchase gain. The purchase price has not been finalized as of December 31, 2018 as the Company continues to analyze the valuations assigned to the acquired assets and assumed liabilities. Due to the complexity in valuing reverse mortgage interests and the significant amount of data inputs required, the valuation is not yet final. As a result of revising the reverse mortgage interests valuation, the purchase accounting accretion and amortization amounts are also subject to change. WMIH incurred total acquisition costs of $92 prior to the consummation of the Merger. No significant additional acquisition costs were recorded during the remainder of fiscal 2018. The acquisition costs were primarily related to legal, accounting and consulting services and were expensed as incurred through July 31, 2018. Included in the total acquisition costs was a transaction fee of $25 to KKR Capital Markets LLC (“KCM”), an affiliate of KKR Wand Investors Corporation, which is WMIH’s largest stockholder, for acting as a non-exclusive financial advisor to WMIH with respect to the Merger and an arrangement fee of $7 to KCM for acting as a placement agent with respect to a bridge financing facility in connection with the Merger that was not executed. In addition, WMIH incurred $38 of costs related to borrowings under the Notes, which were capitalized in debt costs. WMIH also paid KCM a deferred fee of $8, which initially reduced the carrying value of the Series B Preferred Stock. This fee was payable in connection with the conversion of Series B Preferred Stock to WMIH’s common stock upon consummation of the Merger. Included in the Predecessor’s consolidated statements of operations were $27 of acquisition costs incurred by Nationstar for the seven months ended July 31, 2018. The acquisition costs were primarily related to legal, accounting and consulting services. Included in the Successor’s consolidated statements of operations were $10 of acquisition costs related to the compensation arrangements incurred by the Company related to the merger for the five months ended December 31, 2018. The following unaudited pro forma financial information presents the combined results of operations for the year ended December 31, 2018 as if the transaction had occurred on January 1, 2018.
| Year ended December 31, 2018
| (unaudited)
Pro forma total revenues | $ | 1,790 |
Pro forma net income | $ | 16 |
The unaudited pro forma financial information above does not include the pro forma effects of the Company’s acquisition of Assurant Mortgage Solutions as presented below. The above unaudited pro forma financial information is presented for illustrative purposes only and is not indicative of the results of operations that would have actually occurred had the Merger occurred on January 1, 2018. In addition, the unaudited pro forma financial information is not indicative of, nor does it purport to project, the future operating results of the Company. Further, the unaudited financial information excludes acquisition and integration costs and does not give effect to any estimated and potential cost savings or other operating efficiencies, if any, that might result from the acquisition. Acquisition of Assurant Mortgage Solutions On August 1, 2018, Xome Holdings LLC, a wholly-owned subsidiary of the Company, acquired Assurant Mortgage Solutions for $38 in cash with additional consideration dependent on the achievement of certain future performance targets, which was estimated at $15 as of December 31, 2018. Total purchase price is estimated at $53. The acquisition expands Xome’s footprint and grows its third-party client portfolio across its valuation, title and field services businesses. The Company initially recorded $23 of intangible assets and $3 of goodwill based on preliminary purchase price allocation in the third quarter of 2018. During the fourth quarter of 2018, the Company finalized its purchase price allocation and adjusted the fair value of net assets acquired based on the valuation performed by a third party valuation specialist. Such adjustments resulted in $1 increase in intangible assets and $10 increase in goodwill. Therefore, the Company recorded intangible assets of $24 and goodwill of $13 as of December 31, 2018 and expects entire goodwill will be deductible for tax purposes.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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