Pension plan said to be backstop for Home Capital

Shares of Home Capital Group Inc. rebounded on Thursday after it confirmed it had secured a “firm commitment” for a $2-billion credit line to backstop a significant decline in deposits and had retained two investment banks to “advise on further financing and strategic options.”

The announcement comes after shares of the alternative mortgage lender plunged nearly 65 per cent on Wednesday after it said it needed the costly loan facility when its subsidiary Home Trust saw high interest savings account deposits drop by $591 million between March 28 and April 24.

Home Capital said Thursday those deposits had declined by an additional $586 million since April 24 and that it expected to have a high interest savings account balance of about $814 million as of Thursday.

The company added that the loan facility “from a major Canadian institutional investor” is secured against a portfolio of mortgages originated by Home Trust, and will provide Home Capital with approximately $3.5 billion in total funding.

“Access to these funds is intended to mitigate the impact of a decline in Home Trust’s HISA deposit balances that has occurred over the past four weeks and that has accelerated since April 20. The Company will work closely with the lender to have the funds available as soon as possible.”

Home Capital did not identify the identity of the lender, but Bloomberg reported it had secured the loan from Healthcare of Ontario Pension Plan, according to people familiar with the process.

The Toronto-based pension plan represents more than 321,000 health-care workers in Ontario, and its president and chief executive Jim Keohane sits on Home Capital’s board and is a shareholder of the mortgage lender, Bloomberg reported Thursday.

An external spokesman for Home Capital declined to comment on the lender’s identity on Thursday. A spokesman for HOOPP did not respond to a request for comment.

Home Capital also advised that the terms of the loan agreement will have a material impact on earnings, and will leave the company unable to meet previously announced financial targets.

The company also said it had “retained RBC Capital Markets and BMO Capital Markets to advise on further financing and strategic options.” This came as analysts suggested a sale or run-off at Home Capital was a “growing possibility.”

“We are taking important steps to seek to stabilize the business, starting with the announcement today of a new credit line,” said Kevin Smith, chairman of the board of Home Capital, in a statement on Thursday.

Its shares closed up nearly 34 per cent at $8.02 in Toronto on Thursday, clawing back some of the nearly 65 per cent it lost on Wednesday.