Home Capital sells $1.2B in mortgages
Company to use proceeds to reduce debt
Alternative lender Home Capital Group Inc. said Tuesday it has struck a deal to sell a group of commercial mortgage assets valued at $1.2 billion to private equity real estate investment firm KingSett Capital.
The sale is meant to give Home Capital some more financial breathing room as it has faced heavy withdrawals from its high-interest savings accounts, which it uses to finance its mortgage lending.
Home Capital interim president and CEO Bonita Then said the sale will allow it to reduce its outstanding debt taken out under the $2-billion line of credit it arranged with the 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," said Then in a release.
Shares of Home Capital gained more than four per cent on the TSX following the news. The stock rose 63 centst to close at $15.42.
Home Capital said sale is expected to generate about $1.16 billion in net cash proceeds to the company in the third quarter of this year. Home Capital also said it expects to record a loss of roughly $15 million before taxes on the mortgage sale.
KingSett will buy the assets for 99.61 per cent of their outstanding principal value, less a share of future credit losses.
Credit rating agency DBRS said it views the deal as a positive as it improves Home Capital liquidity and funding profile,
"albeit at the cost of future recurring revenues related to holding the loans on its balance sheet."
DBRS also said it considers the "very modest" discount to par on the portfolio sale as showing "the still-sound credit performance" of Home Capital's assets.
Based in Toronto, KingSett has real estate assets in several categories, including offices, retail space, residential, industrial, hotels and development projects.
Last week, Home Capital said it had reached an agreement to pay $29.5 million to settle Ontario Securities Commission and class-action lawsuit matters related to allegations of misleading disclosure. Under the proposed deal, the company will pay $10 million to settle with the OSC and reimburse the provincial securities watchdog costs of $500,000.
with files from the Canadian Press