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.”
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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.