Berkshire Hathaway invests in embattled lender Home Capital

HONG KONG: Warren Buffett’s Berkshire Hathaway Inc is providing a lifeline to Home Capital Group Inc, the embattled Canadian alternative lender whose near collapse sparked intense scrutiny of the country’s fraught housing market.

Berkshire agreed to indirectly acquire C$400mil (US$300mil) of the firm’s shares for about a 38.4% stake and provide a C$2bil credit line to subsidiary Home Trust Co, Home Capital said late Wednesday in Toronto.

“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,” Buffett said in the statement.

The move is the latest sign of a turnaround in the 30-year-old lender after a regulator in April accused it of misleading shareholders on mortgage fraud, which sent its shares tumbling, sparked withdrawals and threatened to disrupt Canada’s real estate sector.

Earlier this week, Home Capital agreed to sell a clutch of commercial mortgages to affiliates of KingSett Capital Inc for C$1.16bil in cash.

Buffett’s firm is investing through its unit Columbia Insurance Co and the average price per share will be about C$10, compared with yesterday’s closing price of C$14.94.

The investment “is a strong vote of confidence,” in the long-term value of the business, Brenda Eprile, Home Capital’s chairwoman, said in the statement.

The deal replaces an existing emergency credit facility on better terms, Home Capital said. The share purchase will be done in two parts: an initial investment of C$153mil for about a 20% equity stake, then an additional investment of C$247mil taking the stake to about 38%. The second phase requires extra approvals.

Berkshire will not be granted any rights to nominate directors and has agreed to only vote shares representing 25% of the company’s stock, Home Capital said. – Bloomberg