Better HoldCo Inc. is laying off 9 percent of its workforce — roughly 900 employees in the U.S. and India — and has revamped the terms under which it plans to go public through a merger with a special purpose acquisition company, or SPAC.
In a video posted to YouTube, Better’s founder and CEO, Vishal Garg told employees who were being laid off that, “The market has changed, as you know, and we have to move with it in order to survive so that hopefully, we can continue to thrive and deliver on our mission.”
“This isn’t news that you’re going to want to hear,” Garg said. “But ultimately it was my decision. And I wanted you to hear from me it’s been a really, really challenging decision to make. This is the second time in my career I’m doing this and I do not do not want to do this. The last time I did it, I cried. This time, I hope to be stronger.”
In the video — which was apparently posted by an affected employee, and includes strong language — Garg says 15 percent of Better employees were being laid off.
A company spokesperson said Garg misspoke because of an error in his talking points, and that 9 percent of Better employees were being laid off globally.
Garg said U.S. employees are being provided with four weeks of severance, one month of full benefits, and two additional months of COBRA (Consolidated Omnibus Budget Reconciliation Act) health coverage.
Better is putting a positive spin on the news, saying the layoffs will position the company for growth as lenders shift their focus from refinancing mortgages to providing purchase loans to homebuyers.
New financing agreements with Aurora Acquisition Corp., Novator Capital, and SoftBank will provide $750 million in up front bridge financing, leaving Better with more than $1 billion on its balance sheet as it continues to move forward with plans for a SPAC merger with Aurora.
SoftBank and Novator Capital have committed to provide up to $750 million in additional financing through a convertible note at Better’s option within 45 days of closing the merger. SoftBank invested $500 million in Better in April, by purchasing shares from existing Better stockholders.
“A fortress balance sheet and a reduced and focused workforce together set us up to play offense going into a radically evolving homeownership market,” Better CFO Kevin Ryan said in a statement provided to Inman.
Better executives have said the company’s vertically integrated business structure — it operates mortgage, real estate brokerage and title subsidiaries — create efficiencies that allow it to outcompete rivals on price.
Under the terms of the original financing agreements announced in May, SoftBank had committed to take a $1.5 billion stake in Better through a “PIPE” — a private investment in public equity — after the merger of Better and Aurora closed.
The new financing agreements reduce SoftBank’s PIPE commitment to $750 million, to be provided up front through interest-free bridge funding that’s expected to be converted into shares in Better Home & Finance Holding Co., as the company will be known after the merger.
In addition, SoftBank and Novator have committed to provide up to $750 million in convertible notes after the merger closes. If state regulators or government-sponsored enterprises don’t approve, the new agreement stipulates that SoftBank and Novator will be off the hook for the convertible notes, but committed to provide a total of $1.25 billion in equity funding. Garg also has agreed “to use reasonable best efforts to assist [SoftBank] in arranging alternative financing or syndicating its position in the post-closing convertible notes.”
Investors warned of volatility
Under the original financing agreement, which was expected to close by the end of this year, Better projected that, after expenses, it would raise $778 million in proceeds from the SPAC merger with Aurora.
But in an investor prospectus before the deal was revamped, Aurora Acquisition Corp. warned that Better’s share price might be volatile after the merger.
Although such warnings are routine, the prospectus noted that on Nov. 1, Better reached a settlement with a longstanding shareholder, Pine Brook Capital Partners, which released Pine Brook from a post-merger lock-up provision. The settlement increased the total percentage of Better’s common stock that would be freely tradable after the merger from 18 percent to 42 percent.
Not only would less than half of Better’s common stock be tradable, but the prospectus warned that a “significant proportion of those shares” were owned by existing Better stockholders who paid less for their shares than Aurora public shareholders.
The combination of those factors “could negatively affect the trading market for shares of Better … and also increase the volatility of such shares that are freely tradeable,” the prospectus warned.
In other words, Aurora public shareholders who did not exercise their right to redeem their shares for $10 might see the value of their shares dip well below that price after the merger.
The same kind of fears prompted early investors in digital title insurer Doma Holdings Inc.’s July SPAC merger to redeem nearly $295 million in shares at $10 each, before their value plunged after the merger was consummated. Shares in Doma have been trading below $6 this week.
Under the original financing agreement Better announced in May, Aurora’s sponsor, Novastar, had agreed to provide a backstop of up to $278 million to cover early redemptions by public shareholders in Aurora. The new financing agreement contains no such provision.
“Given the new capital to Better is now up to $1.5 billion, which is fully committed by SoftBank and Novator Capital in the same ratios as their previous PIPE commitments, the redemption backstop of Novator Capital for shareholder redemptions from Aurora’s trust account has been terminated,” Better said in a press release announcing the new deal terms.
Asked if fears of early redemptions motivated the new deal terms, a source close to the company said that the new financing agreement was “a better deal,” providing “more capital on the balance sheet, sooner.”
In the press release, Better noted that the amendments to the deal “do not change the implied equity value for Better of approximately $6.9 billion,” and that Better, Aurora, and SoftBank will continue to “work together toward public listing as soon as SEC registration and regulatory approvals are complete.”
Editor’s note: This story has been updated to include information from a video presentation by Better founder and CEO Vishal Garg.