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Home Capital Receives New Credit Line as Buffett Backing Expires

Bloomberg 2018-05-16 19:21:55

Home Capital Group Inc., the Canadian alternative lender that was bailed out by Warren Buffett’s Berkshire Hathaway Inc., received a commitment for a new credit line from two banks as backing from the billionaire investor expires next month.



The two-year C$500 million ($389 million) loan from two Canadian banks to Home Trust Company will replace a C$2 billion ($1.6 billion) credit line from Berkshire, Home Capital said in a statement Wednesday. Buffett stepped in to backstop Toronto-based Home Capital last year after it was found by regulators to have improperly disclosed falsified home-loan applications and short-sellers targeted the stock.



The new loan results in a lower aggregate cost than the existing facility, Home Capital’s Chief Financial Officer Brad Kotush said in a statement. “We have significantly reduced our reliance on demand deposits for funding.”



The terms of the new line of credit includes a 0.75 percent upfront commitment fee, 0.6 percent annual standby charge on any unused portion and an interest rate on the drawn portion equal to three-month the Canadian Deposit Offered Rate plus 150 basis points. Three-month CDOR stands at about 1.75 percent so the interest rate would be about 3.25 percent.



The previous credit agreement from Berkshire carried about a 9 percent interest rate on outstanding balances and 1 percent on the undrawn funds.

Berkshire didn’t immediately respond to a request for comment left with an assistant.

Home Capital shares have risen 59 percent in the past 12 months to C$14.13. Berkshire holds about a 20 percent stake, according to data compiled by Bloomberg.