Home Capital Group, Canada’s biggest non-bank lender, is in talks to divest about $2 billion in assets to help pay down a high-interest loan and delay a potential sale of the entire company, according to people familiar with the situation.
The company wants to sell all or part of its commercial mortgage portfolio, its consumer finance business and a small portion of its traditional residential mortgage portfolio to raise the $2 billion ($1.5 billion), the people said.
U.S. buyout firms Cerberus Capital Management L.P., Fortress Investment Group LLC and Apollo Global Management LLC are among those in active talks with Home Capital about buying some of its assets, the people said, declining to be named as the matter is not public.
Home Capital, Cerberus, and Apollo declined comment. Fortress did not respond to requests for comment.
Toronto-based Home Capital expects the proceeds of the sales to help repay a $2 billion loan from Healthcare of Ontario Pension Plan, which provided a high-interest line of credit last month, the people said. Home Capital has said it plans to secure a loan on more favorable terms.
Caisse de depot et placement du Quebec, as well as other pension funds and some private equity firms, are in talks with Home Capital about providing an alternative loan, the people said. Caisse did not respond to a request for comment.
Depositors have withdrawn more than 90 per cent of funds from Home Capital’s high-interest savings accounts since March 27, when the company terminated the employment of former Chief Executive Martin Reid.
The withdrawals accelerated after April 19, when Canada’s biggest securities regulator, the Ontario Securities Commission, accused Home Capital of making misleading statements to investors about its mortgage underwriting business. The company has said the accusations are without merit.
Shares in Home Capital rose by as much as 20 per cent on Thursday after data published by the company showed that the pace of decline of withdrawals had slowed down.
Home Capital said its high-interest savings deposits were expected to have fallen to about $128 million following the completion of Wednesday’s settlements, down from a balance of $134 million the day before and $192 million at the start of the week.
Shares in the company were up 18 per cent to $10.32, having traded as high as $10.50 earlier.
The stock has nearly doubled in value since the start of the week, with some investors buying the shares in the belief that they have been oversold.
Turtle Creek Asset Management acquired 3.5 million shares in the stock on April 28, according to Thomson Reuters data, taking its holding to 12.2 million shares, or 19 per cent of its share capital, making it Home Capital’s biggest shareholder.
CIBC Asset Management purchased 8.4 million shares on April 30, according to Thomson Reuters data, taking its holding to 9.7 million shares, or 15.1 per cent.
Home Capital’s commercial mortgage business, which includes both residential and non-residential mortgages targeting higher-quality borrowers, may be worth about $2 billion, the people said. The consumer finance business includes secured and unsecured credit cards and could be worth about $400 million, the people said. Home Capital could also sell as much as $1 billion in single-family residential mortgages, the people said.
The sale of assets, if successful, is likely to delay the sale of the entire company, the people said.
© Thomson Reuters 2017