Home Capital Depositors Have Withdrawn 94% Of Funds In Past 6 Weeks

According to its latest daily update, Canada's biggest non-bank lender Home Capital Group showed the rate of withdrawals by depositors was slowing, one day after the company raised doubts about its ability to continue as a going concern, albeit for a simple reason: there are almost none left. In other words, over the past six weeks, depositors have withdrawn 94% of funds from Home Capital's high-interest savings accounts since March 28, when the company terminated the employment of former Chief Executive Martin Reid.

Also on Friday, Home Capital said its liquid assets stood at C$962 million at the end of Thursday, which, combined with the total undrawn on the HOOPP credit facility (which as a reminder yields 22.5%) gives the distressed company access to C$1.56 billion in available liquidity and credit capacity.

Also overnight, Home Capital released the terms of the usurious credit facility with the Healthcare of Ontario Pension Plan, that was first announced April 26 in a May 11 filing.

Here are the details via BBG:

  • C$2 billion credit facility is secured against two pools of mortgages, Pool A and Pool B, “reflecting two tiers of collateral credit quality”
  • If collateral from Pool A is pledged, co is able to draw upon 50% of posted value from facility; Pool B allows 26%

This would suggest that the "fair" LTV of HCG's loans, most of which are "less than prime" is somewhere between 26% and 50%, and begs questions where other alt-lenders are marking their own books, not to mention what loss reserves thay will be forced to disclose soon as a result of the HCG fiasco.

Additionally, the company revealed that as of May 9 value of posted collateral totals C$5.4b; C$1.4bn of C$2b credit facility has been drawn to date.

Amounts outstanding may be repaid at any time without penalty; amounts may also be re-borrowed

As Bloomberg also notes, given the maximum share of pledged mortgages that can come from Pool B, up to C$5.778b in collateral can be posted to secure all of this credit facility

  • Criteria that determine whether a given mortgage security is eligible for inclusion in either Pool A or Pool B were redacted from the filings posted on May 11

Perhaps most improtantly, as part of the terms, Home Capital is not able to create, assume, or incur any additional debt unless permitted by the lenders until such time as all its obligations under this facility have been paid in full. This means that the secured lenders now have an option on putting the company into bankruptcy and taking over the keys when the existing liquidity runs out.

Confirming this, Home Capital is also unable to “enter into any reorganization, consolidation, amalgamation, arrangement, winding-up, merger or other similar transaction” without the prior written consent of the Agent, which is currently the Healthcare of Ontario Pension Plan.

Keep a close eye on HCG whose next major liquidity shock is likely to take place over the next 30-60 days as its C$12.6 billion in GICS mature