Home Capital Group Inc. Sells Mortgage

Home Capital Group Inc. has sold a group of commercial mortgage assets valued at $1.2B to private equity real estate investment firm called KingSett Capital.

This deal has now given the company wiggle room of sorts in order to deal with the financial constrains it is experiencing from the withdrawals of its high-interest savings accounts, which it uses to finance its mortgage lending.

The company’s interim president and CEO, Bonita Then, has said that the sale will permit the company to reduce its considerable amount of debt taken out under the $2B line of credit it arranged with HOPP—Healthcare of Ontario Pension Plan.

“This transaction will help the company further stabilize its liquidity position and highlights the flexibility and options created by the quality of our assets.”

Company shares gained more than 4% on the TSX after the news, broke; stocks rose 63cents to close at $15.42.

The sale is expected to bring in about $1.16 billion in net cash proceeds to the company in the 3rd quarter of this year; record a loss of roughly $15 million before taxes on the mortgage sale is expected.

KingSett will buy the assets for 99.61% of their outstanding principal value, less a share of future credit losses.

According to the credit rating agency that is DBRS, the deal is a good thing for the liquidity and funding profile of the company,
“albeit at the cost of future recurring revenues related to holding the loans on its balance sheet.”

Based on Toronto, KingSett has real estate assets in several categories, including offices, retail space, residential, industrial, hotels and development projects.

Home Capital has already reached an agreement to pay $29.5M to settle Ontario Securities Commission and the class-action lawsuit matters related to allegations of misleading disclosure. Under the proposed deal, the company will pay $10 million to settle OSC and repay the provincial securities watchdog costs of $500,000.

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