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Home Capital to draw half of C$2 billion line of credit from HOOPP

Jim Keohane
HOOPP’s Jim Keohane

Home Capital Group said it expected Monday to draw half of a C$2 billion ($1.5 billion) line of credit extended to the Canadian mortgage lender by the C$70.4 billion Healthcare of Ontario Pension Plan, Toronto.

The funds drawn from the line of credit will be used to offset the more than 70% decline in subsidiary Home Trust’s high-interest savings account balance over the past month. Those withdrawals resulted from allegations from regulators that the company misled investors about mortgage applications.

The company also has C$13 billion in guaranteed investment certificates, Home Capital said in a news release

HOOPP on April 27 said in a statement on its website that it had agreed to provide the one-year loan. While HOOPP said it normally does not disclose information on its investments, but “given the amount of media speculation, we have decided to disclose this information.”

The one-year credit line led by HOOPP has a 10% interest rate on outstanding balances and a 2.5% rate on undrawn amounts. The loan is secured by a pool of mortgages originated by Home Trust, the company's mortgage origination subsidiary.

On April 28, Jim Keohane, HOOPP president and CEO, resigned from the Home Capital boards, saying that it wouldn’t be appropriate to serve as a director given the potential conflicts from the line of credit, according to a separate news release from Home Capital.

Those potential conflicts were also cited by Kevin Smith, chairman of Home Capital Group, in Mr. Smith’s withdrawal as a director of HOOPP.

Mr. Keohane said in an interview that HOOPP is protected in the deal for the line of credit because of the way it is structured, with it being backed by a “significant pool of mortgages. So, for every dollar we lend Home Capital, they’re going to provide us with $2 of mortgages as collateral. That’s where we get our protection from.”

Bloomberg contributed to this story.