UPDATE 4-Home Capital to sell C$1.2 bln commercial mortgage book
* Sale will help pay down costly HOOPP facility
* Sale will help stabilize company's liquidity
* Expects net cash proceeds of C$1.16 billion
* Shares up rise as much as 6.8 percent
(Adds analyst comment, further details on terms, shares)
By Matt ScuffhamJune 20 (Reuters) - Canadian lender Home Capital Group Inc
<HCG.TO> said on Tuesday it would sell a portfolio of commercial
mortgage assets valued at C$1.2 billion ($904 million) to
private equity firm KingSett Capital.
Proceeds from the sale will bolster its liquidity and trim
outstanding debt on a C$2 billion emergency facility it agreed
with the Healthcare of Ontario Pension Plan (HOOPP) in April.
The expensive bridge financing of C$2 billion provided by
HOOPP came with an effective interest rate of 22.5 percent on
the first C$1 billion drawn down. That affected the company's
ability to originate new mortgages since it could not afford to
lend money at lower rates than its cost of borrowing.
"Proceeds from the transaction are expected to have an
immediate impact by enabling us to enhance our liquidity and
reduce the outstanding debt under the company's $2 billion
credit facility," said Interim Chief Executive Bonita Then.
Home Capital said KingSett had agreed to purchase the
portfolio for 99.61 percent of its outstanding value, less a
share of future losses on the loans.
It expects to receive an initial cash payment of C$1.16
billion in the third quarter, equivalent to 97 percent of the
value the mortgages. The balance of the payment will depend upon
the level of any future losses.
Shares of Home Capital rose as much as 6.8 percent on
Tuesday and were trading up 4.2 percent at 1325 EST.
"We view the terms of this sale favorably and supportive of
the high quality of Home Capital's mortgage book," said Raymond
James analyst Brenna Phelan.
Home Capital said in April it was pursuing new financing and
strategic options, including the possible sale of some assets.
Depositors have withdrawn 95 percent of funds from Home
Capital's high interest savings accounts since March 27, when
the company terminated the employment of former Chief Executive
The withdrawals accelerated after April 19, when the Ontario
Securities Commission (OSC), Canada's biggest securities
regulator, accused Home Capital of making misleading statements
to investors about its mortgage underwriting business.
Home Capital said last week it agreed a settlement with the
OSC and accepted responsibility for misleading investors about
problems with its mortgage underwriting procedures. [nL1N1JB2MX]
The company still faces significant hurdles, including
securing new long-term funding, finding a permanent chief
executive, rebuilding relationships with brokers, and winning
back the support of depositors and borrowers. [nL1N1JC1BW]
($1 = 1.3274 Canadian dollars)
(Additional reporting by Yashaswini Swamynathan in Bengaluru;
Editing by Bernadette Baum and Cynthia Osterman)
((email@example.com; +1-416-687-7591; Reuters
Keywords: HOME CAPITAL LENDER/DIVESTITURE (UPDATE 4)