pcJ News Briefs – Home Capital Group Inc. (TSX: HCG) has closed previously announced C$2 billion line of credit facility with a wholly owned subsidiary of Berkshire Hathaway Inc. (NYSE: BRK.A and BRK.B), replacing the C$2 billion loan facility made as of May 1, 2017 with Healthcare of Ontario Pension Plan (HOOPP).
Berkshire acquired an approximate 19.99% equity interest in Home Capital today and has agreed to make an additional equity investment which, subject to shareholder approval, would result in Berkshire increasing its equity interest to approximately 38.39%.
Home Capital Group has entered into an agreement with a third party for the sale of approximately $252 million of residential mortgages that is expected to close and fund on June 30, 2017.
HOME CAPITAL ANNOUNCES CLOSING OF NEW C$2 BILLION CREDIT FACILITY AND AGREEMENT TO SELL APPROXIMATELY $252 MILLION OF RESIDENTIAL MORTGAGES
For Immediate Release
TORONTO, June 29, 2017 – Home Capital Group Inc. (TSX: HCG) (“Home Capital” or the “Company”) is pleased to announce the closing of the previously announced C$2 billion line of credit facility entered into by its subsidiary, Home Trust Company, as borrower, with a whollyowned subsidiary of Berkshire Hathaway Inc. (“Berkshire”), as agent and initial lender (the “New Credit Agreement”). The Company is also pleased to announce it has entered into an agreement with a third party for the sale of approximately $252 million of residential mortgages that is expected to close and fund on June 30, 2017.
“This new credit agreement is an important backstop for Home Capital as we move forward to put the Company in a stronger position for success,” said Bonita Then, interim Chief Executive Officer of Home Capital. “We expect enough liquidity to completely pay down the credit line over coming months, and today’s mortgage-sale transaction moves us a step closer to that goal. At that point, the much lower standby fee on this new credit facility will save our Company a significant amount of money compared to the old credit line it replaces.”
New Credit Agreement
The New Credit Agreement replaces, and is on substantially the same terms as, the C$2 billion loan facility made as of May 1, 2017 between Home Trust Company, as borrower, and a major institutional investor (the “Old Credit Agreement”), except as follows:
the interest rate on outstanding balances has been decreased to 9% (from 10%)
the standby fee on undrawn funds has been decreased to 1% (from 2.5%)
there is no upfront commitment fee
funds drawn on the facility will continue to be pre-payable at any time
the facility matures one year from the initial funding date and may not be terminated until the date on which the facility matures
As previously announced, Berkshire acquired an approximate 19.99% equity interest in the Company today and has agreed to make an additional equity investment which, subject to shareholder approval, would result in Berkshire increasing its equity interest to approximately 38.39%. If the board of directors of the Company makes a change in its recommendation regarding the Berkshire additional equity investment for any reason and shareholder approval of the additional investment by Berkshire is not obtained, then the terms of the New Credit Agreement described above shall automatically increase to an interest rate on outstanding balances of 9.5% and a standby fee on undrawn funds of 1.75%.
On closing, Home Trust Company drew approximately $1.65 billion on the New Credit Agreement to repay all amounts outstanding under the Old Credit Agreement and the Old Credit Agreement was terminated.
The Company does not currently intend to draw further on the New Credit Agreement, except to the extent that alternative sources of liquidity on better terms are unavailable to the Company. The Company expects to have sufficient liquidity over the coming months to repay all amounts outstanding under the New Credit Agreement through other sources of funding currently under consideration. However, there can be no assurance that such other sources of funding will materialize or when, and therefore the Company may be required to draw on the New Credit Agreement in greater amounts and for longer periods than currently anticipated.
Sale of Residential Mortgages
The Company has entered into an agreement with a third party for the sale of approximately 1100 residential mortgage loans for proceeds of approximately $249.6 million, representing a purchase price equal to 99.07% of the aggregate principal amount of such loans. The Company will use the proceeds of the sale, which is expected to be closed tomorrow, to repay amounts outstanding under the New Credit Agreement.
Caution Regarding Forward-looking Statements
This press release contains forward-looking information within the meaning of applicable Canadian securities legislation, including relating to the timing, completion and consequences of the transactions described in this press release and the Company’s expectations regarding its future liquidity and access to debt financing. Please refer to the Home Capital’s 2016 Annual Report, available on Home Capital’s website at www.homecapital.com, and on the Canadian Securities Administrators’ website at www.sedar.com, for Home Capital’s Caution Regarding Forward-looking Statements.
About Home Capital Group Inc.
Home Capital Group Inc. is a public company, traded on the Toronto Stock Exchange (HCG), operating through its principal subsidiary, Home Trust Company. Home Trust is a federally regulated trust company offering residential and non-residential mortgage lending, securitization of insured residential mortgage products, consumer lending and credit card services. In addition, Home Trust offers deposits via brokers and financial planners, and through its direct to consumer deposit brand, Oaken Financial. Home Trust also conducts business through its wholly owned subsidiary, Home Bank. Licensed to conduct business across Canada, Home Trust has offices in Ontario, Alberta, British Columbia, Nova Scotia, Quebec and Manitoba.
About Berkshire Hathaway Inc.
Berkshire Hathaway and its subsidiaries engage in diverse business activities including insurance and reinsurance, utilities and energy, freight rail transportation, finance, manufacturing, retailing and services. Common stock of Berkshire is listed on the New York Stock Exchange, trading symbols BRK.A and BRK.B.
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