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

Coroners office investigates death of Victoria-area teen

Investigation involves ‘male teenager’, confirmed student at Oak Bay high

Greater Victoria Teachers’ Association joins counter-protest

GVTA released statement of support for LGBTQ in response to upcoming protest

WATCH: Topaz Park open house scheduled for Saturday

This will be the final stage of public engagement for park design

UPDATED: Health Canada looking into B.C. boy’s treatment of rabid dog saliva

BC Naturopathic Association questions Dr. Anke Zimmermann’s conduct on recent treatments

BCSPCA’s proposed limits on chickens go too far: urban food advocate

Capping the number of hens at 12 an unnecessary solution, Aaren Topley tells Victoria council

Lt.-Gov. Guichon believes she made the right decision

Outgoing Lt.-Gov Judith Guichon said her most memorable moments weren’t surrounding the election

Spring Home Show this weekend in Colwood

West Shore Parks and Recreation will be transformed to showcase everything home related

VIDEO: Smokers talk pot rules at annual 4-20 event

Annual pot protest-meets-festival in Vancouver attracted hundreds to vendors, concert

Saanich’s Shew sisters win gold, silver at national wrestling championships

Kiana, 17, won gold while Zena, 14, won silver at nationals

New funds, recruits set to alleviate B.C. sheriff shortage

The Government of British Columbia announced new sheriff graduates, funding for more classes

Video: RCMP investigation gets a deer little photobomb

Princeton RCMP were conducting a drug investigation in Princeton which a deer strolled through

Farnworth says five years too long for feds to deal with organized crime in medical pot

Needs to be dealt with much sooner than that, B.C. Public Safety Minister says

UPDATED: Unions, CP Rail come to agreement, avoiding work stoppage

Locomotive engineers, conductors and signals specialists seeking new collective agreements.

B.C. woman known to hitchhike around province missing

Aislynn Hanson, 18, last seen April 13; known to travel throughout B.C. by hitchhiking

Most Read