Home News Home Capital — the mortgage lender bailed out by Buffett — is being bought by Smith Financial

Home Capital — the mortgage lender bailed out by Buffett — is being bought by Smith Financial

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Home Capital Trust-1121-ph

Home Capital Group, a mortgage lender that survived regulatory scrutiny, a short-selling campaign and a partial bank crackdown, has been acquired by Smiths Financial.

$44 per share Offer from company The firm, managed by Canadian businessman Stephen Smith, values ​​Home Capital at $1.7 billion, representing a 72% premium to the 20-day volume-weighted average trading price.

The Toronto-based company’s share price has fallen recently amid rising interest rates and the looming renewal of most of its on-book mortgages. But before that, the stock had risen significantly from its 2015-2017 slump.

During that period, the company lost its longtime CEO Gerry Soloway. He took command when an internal investigation found that about 45 brokers had falsified employment and income information used to support the majority of mortgage applications, as well as false documentation. I was doing it. Income verification completed.

The broker was let go, but Home Capital “misled” shareholders for months about the reasons for the subsequent decline in mortgage originations, according to a 2017 settlement with the Ontario Securities Commission.

Before its clash with regulators, Home Capital was one of Canada’s largest near-prime or alternative-A mortgage lenders, providing home loans to people who didn’t meet the interest rates offered by the country’s big banks. was highly valued for doing so. Funded by a thriving deposit business, Home Capital has secured a niche serving the self-employed and immigrants who do not yet have a significant credit history in the country.

When OSC filed allegations of misleading disclosures against the company in the spring of 2017, customers began withdrawing from Home Capital’s high-interest savings accounts and GIC, which led to the company’s became a source of funding for home loans.

A partial bank crackdown has raised Home Capital’s $2 billion rescue fund at high interest rates, raising questions about its viability.

Some firm observers, including Jim Keohane, who was at the helm of the Health Care of Ontario Pension Plan (HOOPP) when it extended a $2 billion lifeline into home capital, said many of the problem mortgages were OSCs. has rolled off its books by the time it has leveled its claims against the company.

But Marc Cohodes, a California-based short seller who invested in Home Capital after concluding in 2014 that the company’s shares may have been overvalued, said the company’s share price was lower following the OSC allegations. It ran a campaign of voices suggesting the plunge was just the beginning.

In June 2017, Home Capital agreed to pay $30.5 million to settle both OSC’s allegations of misleading disclosure and the class action lawsuit. .

With the regulatory tangle behind it, a new list of executives and an infusion of capital from Warren Buffett’s Berkshire Hathaway, the company has moved forward with a strategic plan for 2019 that includes digitizing its operations. . Stocks began to rebound, falling again only early in the COVID-19 pandemic.

Smith Financial’s acquisition of Home Capital is expected to close in mid-2023, subject to regulatory approvals. The company’s board of directors unanimously approved the transaction, concluding that it was “in Home Capital’s best interests and fair to its shareholders.”

The directors and senior officers have entered into a voting support agreement with the Purchaser and have agreed to vote in favor of the acquisition of all shares of common stock they own or control.

However, the “go shop” period through December 30 allows Home Capital to “aggressively” begin soliciting, evaluating and negotiating with anyone else interested in acquiring the company, while Smith Financial Retain the “right to match” at the end. of that period.

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