Derivative Financial Instruments

3 Months Ended

Mar. 31, 2023

Derivative Instruments and Hedging Activities Disclosure [Abstract]

Derivative Financial Instruments

Derivative Financial Instruments

In February 2023, UAWT entered into a $198.7 million notional amortizing interest rate cap agreement with a strike rate of 3.0% and a premium of $5.6 million in relation to the $200 million UAWT Warehouse Credit Facility, which uses a 1-month Secured Overnight Financing Rate (“SOFR”) as the underlying variable rate for the interest rate on the borrowings under the facility. This cap provides protection to UAWT against exposure to changes in cash flows to the extent 1-month SOFR exceeds 3.0%. This agreement also ensures that the Company remains compliant with the covenants of the Warehouse Credit Agreement. The interest rate cap has a maturity date of April 2029.

The interest rate cap meets the definition of a derivative and is reported at fair value as part of other assets on the condensed consolidated balance sheets. It is classified as Level 2 under the fair value hierarchy as the inputs to the derivative pricing model are generally observable and do not contain a high level of subjectivity. The fair value of the interest rate cap is determined based on the present value of the estimated future cash flows over the contract term using implied interest rates as of the valuation date. The Company recorded an immaterial loss within interest expense on the condensed consolidated statements of operations and comprehensive income (loss) for the quarter ended March 31, 2023.

In March 2023, in connection with a loan sale agreement, we entered into an arrangement under which we are obligated to make payments to the loan buyer or are entitled to receive payments from the buyer if credit losses on personal loans subject to the arrangement deviate from expectations, subject to a dollar cap. As the loan purchaser maintains control of the transferred assets and retains the risk of loss, and the assets remain legally isolated from the Company, the transfer qualified for true sale accounting. The derivative is classified as an asset or a liability and its value is included in other assets or other liabilities, respectively, on the condensed consolidated balance sheets based on the classification of this derivative as an asset or liability. The arrangement is measured at fair value on a recurring basis using a discounted cash flow model. It is categorized as a Level 3 instrument, as the fair value depends on the credit performance of the underlying loan portfolio. The arrangement had no value as of March 31, 2023 as the underlying loan portfolio performs in line with expectations. It also had no impact on the

Company’s condensed consolidated statements of operations and comprehensive income (loss) in the quarter ended March 31, 2023.