Home Capital Group Inc. (TSX: HCG) announced today Home Trust, its wholly owned subsidiary, has secured a firm commitment for a $2 billion credit line from a unnamed Canadian institutional investor.
Home Capital later disclosed the lender as the Healthcare of Ontario Pension Plan (HOOPP). As result of the transaction, Jim Keohane, President & CEO of HOOPP, has resigned from the boards of Home Capital and its subsidiaries, Home Trust and Home Bank.
The $2 billion loan facility is secured against a portfolio of mortgages originated by Home Trust.
Home Capital Group has retained RBC Capital Markets and BMO Capital Markets to advise on further financing and strategic options.
Home Trust has agreed to paying a non-refundable commitment fee of $100 million and will make an initial draw of $1 billion. The interest rate on outstanding balances is 10 per cent, and the standby fee on undrawn funds is 2.5 per cent. The facility matures in 364 days, at the option of Home Trust.
The facility, combined with Home Trust’s current available liquidity, provides Home Capital with access to approximately $3.5 billion in total funding, exceeding the amount of outstanding High Interest Savings Account (HISA) balances.
Home Trust had liquid assets of $1.3 billion as at April 25, plus an additional portfolio of available for sale securities totaling approximately $200 million.
Access to these funds is intended to mitigate the impact of a decline in Home Trust’s HISA deposit balances that has occurred over the past four weeks and that has accelerated since April 20. Home Capital will work closely with the lender to have the funds available as soon as possible.
Home Trust expects to have a HISA balance of approximately $814 million on Thursday, April 27, after settlement of Wednesday’s transactions.
Total Guaranteed Investment Certificate deposits, including both Oaken and broker GICs, stood at $12.98 billion as at April 25.
Home Capital said the terms of the agreement will have a material impact on earnings, and will not be able to meet previously announced financial targets.
photo credit: Home Capital Group