Home Capital receives new credit line from two Canadian banks as Buffett backing expires
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 $500 million (US$389 million) loan from two Canadian banks to Home Trust Company will replace a $2 billion (US$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 per cent upfront commitment fee, 0.6 per cent 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 per cent so the interest rate would be about 3.25 per cent.
The previous credit agreement from Berkshire carried about a 9 per cent interest rate on outstanding balances and 1 per cent on the undrawn funds.
Berkshire didn’t immediately respond to a request for comment left with an assistant.
Home Capital shares have risen 59 per cent in the past 12 months to $14.13. Berkshire holds about a 20 per cent stake, according to data compiled by Bloomberg.