Home Capital shares plunge after signing deal for $2-billion credit line

Home Capital shares plunge after credit deal

TORONTO — Home Capital Group Inc. (TSX:HCG) shares lost more than half their value in early trading on Wednesday after the mortgage lender warned it would be unable to meet its financial targets under the terms of a new credit line it is working to secure.

Home Capital sought the credit line as savers stepped up withdrawals from the high-interest savings accounts of its Home Trust subsidiary, used by the company to fund its lending.

The lender’s stock price had already taken a hit last week after staff at Ontario’s securities regulator alleged that the company, two former CEOs and the current CFO broke the law in their handling of a scandal involving falsified loan applications. The company has said the allegations are without merit and vowed to defend itself.

The company said Wednesday that Home Trust has reached a non-binding agreement in principle with a unidentified major institutional investor for a $2-billion credit line. But it warned that the terms of the proposed agreement “would have a material impact on earnings, and would leave the company unable to meet previously announced financial targets.”

A firm commitment for the credit line was expected to be agreed to later today.

Shares in Home Capital fell $10.26 to $6.83 in late-morning trading on the Toronto Stock Exchange.

Home Capital said Wednesday that high-interest savings account balances have fallen by $591 million in the period from March 28 to April 24. The total high-interest savings account balance stood at roughly $1.4 billion at April 24.

“The company anticipates that further declines will occur, and that the credit line would also mitigate the impact of those,” Home Capital said in a statement.

Home Trust’s guaranteed investment certificate deposits remained essentially unchanged over that time at roughly $13.01 billion as of April 24 compared with $13.06 billion at March 28.

Home Trust and Home Bank deposits of up to $100,000 are protected by the Canadian government’s Canada Deposit Insurance Corp.  

Combined with Home Trust’s current available liquidity, the credit line will provide access to more than $3.5 billion in total funding, the company said.

The $2-billion loan facility will be secured against a portfolio of mortgages originated by Home Trust and mature in 364 days.

Under terms of the proposed deal, Home Trust will be required to pay a non-refundable commitment fee of $100 million and make an initial draw of $1 billion. The interest rate on outstanding balances will be 10 per cent, and the standby fee on undrawn funds will be 2.5 per cent.

On Monday, Home Capital announced that chief financial officer Robert Morton, who is one of the three men named in the OSC allegations, will be assigned new responsibilities after first-quarter results are filed next month.

It also said Home Capital founder Gerald Soloway, who was formerly the company’s chief executive and also named in the allegations, will step down from the board of directors once a replacement is found.

The Canadian Press

Just Posted

Foreinger feeling like the first time after 40

Foreigner doesn’t miss a beat after 40 years

Octoberfest is the toast of the town

Eighth annual night of fun, music and brews

Vees lose 4-2 to Wenatchee

The Vees face the Wild again Wednesday, on home ice

Five decades of volunteering

Even though she is approaching 70, Merle kindred continues to volunteer around the world

Human remains found at Silver Creek property

RCMP have been searching the property in the 2200 block of Salmon River Road for the past three days

VIDEO: Sears liquidation sales continue across B.C.

Sales are expected to continue into the New Year

Who is Curtis Sagmoen?

The Observer reveals what we know about the man attached to the Silver Creek property where human remains were found

VIDEO: Oprah Winfrey and a celebrities attend ‘B.C. Miracle Concert’

Fundraiser featured Foster, Steven Tyler, The Tenors, Matteo Bocelli, Laura Bretan, Carly Rae Jepsen

Reel Reviews: Nothing left to lose

We say, “Grieving Quan kicks butt”

New B.C. acute care centre opens for young patients, expectant mothers

Facility aims to make B.C. Children’s Hospital visits more comfortable

Search ramps up for B.C. woman after dog, car found near Ashcroft

Jenny Lynn Larocque’s vehicle and dog were found in Venables Valley, but there is no sign of her

Police officer hit by car, stabbed in Edmonton attack back on job

Const. Mike Chernyk, 48, returned to work Thursday

UBC medical students learn to care for Indigenous people

Students in health-related studies to take course, workshop to help better serve Aboriginal people

Dorsett has 2 goals, assist in Canucks’ 4-2 win over Sabres

‘It was a real good hockey game by our group,’ Canucks coach Travis Green said.

Most Read