Published On: Wed, May 16th, 2018

Two banks back Home Capital with new $500-million credit line

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 loan from two Canadian banks to Home Trust Company will replace a $ 2-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 (CDOR) 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.

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Two banks back Home Capital with new $500-million credit line