In a Securities and Exchange Commission filing on Oct. 4, Opendoor revealed it has entered into an amended mezzanine debt facility with a $3 billion limit. The amended mezzanine debt facility will bridge the gap between Opendoor’s debt and equity financing, and boost the iBuyer’s borrowing power to $9 billion.
“[Opendoor] uses senior debt to pay for 80 percent to 90 percent of a given home, and mezzanine debt for the balance,” Bloomberg News explained in an article on Tuesday. “The company’s new $3 billion mezzanine facility gives it room to acquire more than 40,000 homes, based on an average home price of $350,000. The company would need more senior debt to reach that figure.”
Opendoor is already addressing the senior debt issue, according to a previous Inman article outlining the company’s plans to raise $862.5 million in debt financing.
In August, Opendoor said it was looking to raise $750 million in a private offering with qualified institutional investors. The funds would come in the form of senior convertible notes that would mature in 2026 unless they’re repurchased, redeemed or converted before the maturation date. The company also expected initial investors to purchase up to $112.5 million in additional notes.
Since going public through venture capitalists Chamath Palihapitiya and Ian Osborne’s special purpose acquisition company (SPAC) Social Capital Hedosophia Holdings Corp. II, Opendoor has adopted a more aggressive growth strategy that’s included expanding its homebuying pool, doubling its market availability and strengthening its value proposition with homebuyers.
“We’ve invested in data ingestion and modeling approaches that allow us to more efficiently build and calibrate our pricing algorithms in new markets,” Opendoor President Andrew Low Ah Kee told Inman in September. “We’ve invested in technology and tooling that allows many operations to run in a more scalable, centralized fashion.”
“And, perhaps most importantly, we’ve invested in our team and culture so that we have a talented group of people who are excited by the challenge of achieving the unprecedented,” he added. “Our mission is to empower everyone with the freedom to move, so, over time, we expect to be able to service consumers in every U.S. market.”
Despite headwinds caused by the coronavirus pandemic, Opendoor beat analyst expectations for its second-quarter earnings with $1.2B in revenue. Although the company slashed its net losses on a quarterly basis, its net losses increased from $88 million in Q2 2020 to $144 million in Q2 2021.
Opendoor CEO Eric Wu said the company is laser-focused on accelerated growth, which for many companies, equals a temporary hit on profitability. “We’re seeing rapid adoption,” he said of Opendoor’s mad dash to the front of the iBuyer market, which includes other behemoths Zillow and Redfin.
The company’s stock (OPEN) has been on the upswing this week, after a 16 percent drop in stock value since January, Bloomberg said. As of Thursday morning, Opendoor’s price per share increased 2.99 percent to $20.31 — $0.69 away from a 30-day high of $21 per share.