National Post

Major loan in sight for Home Capital

- John Tilak Matt Scuffham and

Home Capital Group Inc. is in talks with a syndicate of banks, including some of Canada’s biggest lenders, to secure a loan of about $2 billion to replace a costly emergency credit line it secured in April, people with knowledge of the matter told Reuters.

Royal Bank of Canada, Bank of Montreal and Toronto- Dominion Bank are among the Canadian lenders that are expected to be part of the syndicate, the people said on condition of anonymity as the talks were confidenti­al.

The new loan will be on much more favourable terms than the existing $ 2- billion loan provided by the Healthcare of Ontario Pension Plan ( HOOPP), which came with an effective interest rate of 22.5 per cent on the first $ 1 billion drawn down, the people said.

Shares in Home Capital rose as much as 5.9 per cent following Reuters report, having been down by 5.4 per cent prior to the Reuters story.

Home Capital has held talks with each of the country’s biggest six banks, but not all are expected to participat­e, the sources said.

Credit Suisse, Goldman Sachs and other internatio­nal banks are also in discussion­s with Home Capital, and it is possible that a global bank may be part of the syndicate, they said.

Depositors have withdrawn 95 per cent of funds from Home Capital’s high interest savings accounts since March 27, when the company terminated the employment of former chief executive Martin Reid.

The withdrawal­s accelerate­d after April 19, when Canada’s biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriti­ng business. The company has said the accusation­s are without merit.

On Wednesday, a settlement was announced with the OSC.

The rate of withdrawal­s from savings accounts have slowed since the middle of May. The company’s Guaranteed Investment Certificat­e ( GIC) deposits, a key source of funding, have also stabilized after initial declines.

That has helped strengthen the lender’s hand as it targets new sources of long-term funding, sources say.

Home Capital is seeking an interest rate of 2 to 3 per cent above the cost of funds though it is not clear if it will manage to secure a loan within that preferred range, the people said.

Home Capital declined to comment.

RBC, Toronto- Dominion Bank, Credit Suisse and Goldman Sachs also declined to comment. BMO did not immediatel­y respond to requests for comment.

Home Capital, which hired RBC and BMO in April to advise on its strategic options, provides loans to borrowers, such as self-employed workers or newcomers to Canada, who may not meet the strict criteria of the country’s biggest banks.

Concerns about Home Capital and overheatin­g housing markets in Toronto and Vancouver had led to concerns about problems spreading within Canada’s banking system, causing shares in the financial sector to fall to a 5-month low in May.

Last month, rival mortgage provider Equitable Group Inc secured a $ 2 billion loan from Canada’s biggest six banks — RBC, TD, BMO, Bank of Nova Scotia, Canadian Imperial Bank of Commerce and National Bank of Canada .

The terms of that loan included an interest rate on drawn funds equal to the banks’ cost of funds plus 1.25 per cent, a 0.75 per cent commitment fee and a 0.50 per cent standby charge on undrawn funds.

Over time, Home Capital hopes to land a loan closer to the terms that Equitable secured, the people said.

While other financial players have also looked at providing a loan to Home Capital, a bank syndicate is seen as the most likely outcome, the people said.

 ?? PETER J. THOMPSON / NATIONAL POST ?? Home Capital has held talks with each of the country’s biggest six banks, but not all are expected to participat­e.
PETER J. THOMPSON / NATIONAL POST Home Capital has held talks with each of the country’s biggest six banks, but not all are expected to participat­e.

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