Warren Buffett helps out hard-pressed Home Capital

by Ephraim Vecina26 Jun 2017
Home Capital Group might see some of its long-running troubles somewhat lightened with the arrival of a C$2.4 billion (US$1.8 billion) financing package from Warren Buffett’s Berkshire Hathaway.

The two-tranche deal will inject up to $400 million of equity, along with a new $2 billion line of credit carrying a 9.5 per cent interest rate on outstanding balances (slated to drop to 9 per cent over time). Upon shareholder approval, Berkshire will purchase shares totalling around 38 per cent of the enlarged company at an average $10 a share.

“[Home Capital’s] strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” Warren said in a statement, as quoted by the Financial Times.

This type of assistance from Buffet was not unprecedented, as he similarly provided US$5 billion to the Bank of America (which was struggling with legal problems in the wake of the global crisis) around six years ago.

Earlier this week, Home Capital announced an agreement with KingSett Capital to sell a commercial mortgage portfolio valued at around $1.2 billion.

“This transaction will help the company further stabilize its liquidity position and highlights the flexibility and options created by the quality of our assets,” Home Capital interim president and CEO Bonita Then said.

“Proceeds from the transaction are expected to have an immediate impact by enabling us to enhance our liquidity and reduce the outstanding debt under the Company’s $2 billion credit facility.”

These developments tie into the channel lender’s attempts to stabilize itself in the wake of rapidly depleting deposits and allegations from the Ontario Securities Commission that it misled investors in 2015.

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