Cash-strapped Home Cap­i­tal to sell up to $1.5B in mort­gages

Fate of sub­prime lender watched by in­vestors

The Hamilton Spectator - - BUSINESS - ALEXAN­DRA POSADZKI

TORONTO — Shares of Home Cap­i­tal Group shot up Tues­day af­ter it an­nounced that an in­de­pen­dent third party ex­pressed in­ter­est in buy­ing up to $1.5 bil­lion of its mort­gage as­sets, a move in­tended to re­in­still con­fi­dence in the cash­strapped lender.

The com­pany — which has seen cus­tomers with­draw more than $1 bil­lion from their ac­counts re­cently — said the uniden­ti­fied party has in­di­cated a non-bind­ing in­ten­tion to buy at least $500 mil­lion of qual­i­fy­ing unin­sured mort­gages im­me­di­ately.

The uniden­ti­fied buyer could also pur­chase up to $500 mil­lion of ad­di­tional unin­sured mort­gages as well as up to $500 mil­lion in in­sured mort­gages, Home Cap­i­tal said.

The lender, which uses money de­posited into GICs and sav­ings ac­counts to help fund its mort­gage prod­ucts, didn’t dis­close what the buyer would pay or when a firm deal would be con­cluded.

The com­pany’s shares soared 29.72 per cent, or $2.03, to close at $8.86 on the S&P/TSX com­pos­ite in­dex.

The com­pany’s in­terim CEO, Bonita Then, said the pro­posed sale is de­signed to give Home Cap­i­tal the abil­ity to con­tinue serv­ing as many cus­tomers as pos­si­ble through its net­work of mort­gage bro­kers.

“This is an­other step for­ward in the com­pany’s ef­forts to re­store con­fi­dence in our oper­a­tions,” added Home Cap­i­tal board chair Brenda Eprile in a state­ment.

Home Cap­i­tal said it is also tight­en­ing its lend­ing cri­te­ria and re­duc­ing some of its bro­ker in­cen­tive pro­grams — moves that it said could re­duce the num­ber of its new mort­gages and re­newals.

The fate of the sub­prime mort­gage lender is be­ing closely watched by in­vestors, reg­u­la­tors and gov­ern­ments, as some mar­ket ob­servers worry its woes could un­der­mine the broader Cana­dian fi­nan­cial sec­tor.

On Mon­day, the com­pany said it has drawn $1.4 bil­lion from a $2bil­lion emer­gency line of credit pro­vided by the Healthcare of On­tario Pen­sion Plan, one of On­tario’s largest public-sec­tor pen­sion funds.

Home Cap­i­tal’s share price has been un­der pres­sure in re­cent weeks fol­low­ing al­le­ga­tions from the On­tario Se­cu­ri­ties Com­mis­sion that the com­pany and three se­nior ex­ec­u­tives mis­led in­vestors in their han­dling of fal­si­fied loan ap­pli­ca­tions.

The com­pany has vowed to de­fend it­self against the al­le­ga­tions, which it says are with­out merit. Lawyers for the three men haven’t re­sponded to re­quests for com­ment.

The lender has made a num­ber of changes to its board re­cently in a bid to boost in­vestor con­fi­dence. Last week it an­nounced it is re­plac­ing com­pany founder Ger­ald Soloway with for­mer Royal Bank ex­ec­u­tive Alan Hibben.

Also Mon­day, Home Cap­i­tal an­nounced the ad­di­tion of three new board mem­bers, in­clud­ing two for­mer CEOs of ma­jor On­tario pen­sion funds, and named Eprile as chair. Eprile, who joined the Home Cap­i­tal board last year, re­places Kevin Smith, who will re­main on the board.

THE CANA­DIAN PRESS FILE PHOTO

Home Cap­i­tal says it has en­tered into an ar­range­ment with an in­de­pen­dent third party that is in­ter­ested in buy­ing up to $1.5 bil­lion of its mort­gage as­sets. A date for the deal with the uniden­ti­fied buyer is un­known.

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