Toronto: Home Capital Group Inc. has been backed by various financial companies of Warren Buffett which invested whopping $400-million in equity investments. In addition, he will take 38% stake in the mortgage lender which led Home Group to 27% high on Thursday.
A side effect of this observed on other lenders to whose shares rose at the same time. Equitable Group Inc (EQB.TO) closed up 12.5 percent. Street Capital Group (SCB.TO) closed up 8.3 percent. Shares in mortgage insurer Genworth MI Canada Inc (MIC.TO) were up 11.5 percent.
It took two months for Home Capital’s board to balance sheet the Healthcare of Ontario Pension Plan (HOOPP) under the advisory RBC Capital Markets and BMO Capital Markets. May facilities were replaced and upgraded to shore up the lender’s balance sheet.
Basically, the credit facility from Home Group was planned to provide funding to Canada’s largest non-bank lender which withdrawn 95% of its high-interest deposits in just 60 days.
The Home Capital Stock was going down as customers started withdrawing the funds due to its mortgage funding utilisation. Certain charges were applied for misleading the investors against Home Capital.
While the investment from Berkshire Hathaway can be seen as a vote of confidence, it is acquiring its shares in Home Capital at a significant discount from where they are trading today and with certain approvals required.
Consequently, Berkshire will be flexible enough to share loads of Home Capital as it will charge a slightly lower interest rate than charged by the Healthcare of Ontario Pension Plan.
The interest rate will initially drop to 9.5 percent and then to 9.0 percent after the initial investment closes. HOOPP’s interest rate has been 10 percent.
In addition, Berkshire Hathaway will also take a 38.4 percent stake in the company after buying $400 million worth of Home Capital stock.
On initial stage, there will be 20% stake purchase in which price is already discounted by 15% to average share price prior to its final proposal. Moreover, it claimed the 33% discount on 22nd June, Wednesday’s closing price.
Buffett is not spreading its liquidity to that extent in Canada. He is working in sleep mode on oil and gas producer Suncor Energy Inc but unfortunately, sold the stake last year. This is Buffett’s ultimate step to have major role in one of Canada’s bigger enterprise who was near to sink its market value.