Old guard to leave Home Capital board
Troubled lender takes another step to shore up market confidence
Three of Home Capital Group Inc.’s longest-serving directors will not stand for re-election as the embattled alternative mortgage lender continues to reshape its governance team and works to resolve its liquidity issues.
Former chairman Kevin Smith, William Walker and Robert Mitchell will depart the board after its June 29 annual shareholders meeting, leaving a largely new guard of just nine Home Capital directors — five of whom have signed on in recent weeks, and none of whom have served longer than three years.
Home Capital chairwoman Brenda Eprile thanked the three departing directors “for their many positive contributions over the years” in a message to shareholders in its proxy circular.
“The result of these changes is that the Corporation is moving forward with a Board that is substantially renewed and is well equipped for the work of dealing with the Corporation’s challenges and opportunities,” Eprile said in the updated circular released late Tuesday.
Home Capital’s latest move to shore up market confidence comes as the company is due for a hearing Friday before the Ontario Securities Commission, which has accused the non-bank lender and three of its former executives of misleading disclosure. The allegations have not yet been proven, and Home Capital has said they are “without merit” and vowed to defend its approach to disclosure.
Since the emergence of the allegations, and a series of executive departures, Home Capital has seen deposits at its subsidiary Home Trust fall drastically, putting in jeopardy a key source of funding for its mortgage lending.
As of May 30, deposit holders have withdrawn $1.88 billion or 94.6 per cent of the balances from its high interest savings accounts.
Guaranteed Investment Certificate (GIC) deposits, a much larger source of funding, stood at $12.20 billion as of May 30, down from $13.06 billion as of March 28.
Since the end of March, shares of Canada’s biggest non-bank lender have fallen more than 65 per cent, and closed at $9.14 on Wednesday in Toronto.
Last month, Home Capital said the recent reputational hit had impacted its future funding abilities and cast “significant doubt on the Company’s ability to continue as a going concern.”
Eprile said in the circular that the board understands recent events “have caused significant concern” for shareholders and other stakeholders, and there will be “open and frank communications” at the annual general meeting later this month.
“As you know we have been experiencing an extremely challenging period for Home Capital. … It is our firm commitment that Home Capital will do all it can to emerge from this period strong and continue to play a vital role in the Canadian mortgage market,” she said.
In April, Home Capital secured a $2-billion rescue credit facility as a backstop from a syndicate of lenders led by the Healthcare of Ontario Pension Plan, but at onerous terms that the firm says limits its future profitability. It has drawn $1.65 billion to date from that facility, part of which went toward repaying $325 million in deposit notes due on May 24.
It also has a non-binding arrangement to sell or place funded mortgages or mortgage commitments and renewals up to $1.5 billion, a deal facilitated by mortgage financing firm MCAP Corp. The arrangement gives Home Capital some time to sort out long-term solutions to its liquidity crisis.
The company has said it is considering the sale of non-core assets such as certain loan portfolios to help pay down the $2-billion loan, and seeking other financing.
Home Capital has institutional deposit notes worth roughly $175 million due sometime between July 1 and March 31 next year, and another $305 million due within one to three years, according to its latest quarterly report.
Its much bigger obligations are its GICs for individuals and businesses, with some $2.4 billion due for maturity within the current quarter, and $4.1 billion due between July 1 and March 31 next year.
Home Capital can remain in a “holding pattern” as long as its deposits mature at a slower rate than the mortgages roll off their books, said Mike Rizvanovic, an analyst at Veritas Investment Research.
“Their GICs mature at a less rapid rate than their loans. And so, if there are no issues with the borrowers they’re turning away finding funding from an alternative lender, then that’s actually a positive,” he said.
As Home Capital’s mortgages due for renewal are placed elsewhere, it would be paid the remaining balance, giving the company liquidity to be used to pay out the GICs, he added.
Home Capital said Tuesday it is “managing its originations of new business and renewals of existing business to align with current liquidity levels and funding capacity.”
“Management expects non-securitized single-family residential mortgage originations will be constrained until at least the end of the year, while renewal percentages are likely to fall within historic ranges,” it said in a statement. “Management will continue to work on developing longer-term liquidity solutions.”