HomeTrust On Sale (Oaken Financial) | Page 15 | Oaken Financial | Discussion forum

"Wavering on Home Capital high-interest GICs? Buffett's got your back
By Rob Carrick
Globe and Mail Update
With Mr. Buffett helping to financially support Home Capital, the company may not need to offer premium rates for long
If Warren Buffett likes Home Capital enough to invest in its shares, then there's less reason to hold back on the company's GICs.
That 3.25 per cent, five-year guaranteed investment certificate that Home Capital's selling under its Oaken Financial brand? Get it while you can. With Mr. Buffett's Berkshire Hathaway helping to financially support Home Capital, the company may not need to offer premium rates like this for long."

https://beta.theglobeandmail.com/globe-investor/inside-the-market/wavering-on-home-capital-high-interest-gics-buffetts-got-your-back/article35420847/?ref=https://www.theglobeandmail.com&

Saver-Mom said
http://www.newswire.ca/news-re.....93853.html

"The Company also provided information regarding the growth of its Guaranteed Investment Certificate (GIC) deposit inflows, including Oaken and broker GIC deposits.

"We have been encouraged by the increasing strength of our deposit inflows, particularly since the recent announcement of the equity investment and new credit facility provided by Berkshire Hathaway. We believe that the improvement in deposit taking indicates a significant increase in depositor confidence in the Company", said Alan Hibben, Director, Home Capital."

Daily Gross GIC Deposits on June 26 $70 million, up from a low 6 weeks ago of ~$4 million per day.  

Should be noted that current gross GIC deposit inflows of $70 million exceed their normal gross GIC deposit inflows of $30-40 million in a normal state. Shows that these rates are gaining quite a bit of traction.

Jon said
Buffett save the day here, but I am concern what will happen when shareholder reject Berkshire' s proposal for the issuance of new share at a deeply discounted price ( I think Norman mention NAV per share is 28 bucks). Will it cause new round of bankrun?  

Not sure if it matters much now whether shareholders approve or reject the remaining $246.8 million of the $400 million investment from Berkshire Hathaway in September.

On Friday (June 30), Home Capital Group announced receiving $129 million from a previously-announced sale of commercial mortgages. Another $249.6 million from the sale of $252 million of residential mortgages is expected that same day.

$129 + $249.6 = $378.6 million, which is more than the additional $246.8 million potentially from Berkshire Hathaway.

The day before, Berkshire's initial investment closed and Home Capital Group received $153.2 million from that.

I can't do justice to the conversation between Norman and Jon, but I did read, I think it was in the Globe and Mail, at the time of the BH deal, that there had been about 70 other offers / potential offers / serious inquiries, other than BH. This would suggest another deal could be made - perhaps even with BH, since Buffett says he finds Canada so attractive. (!) Meanwhile, very busy at the Oaken store in TO last Friday. HCG has successfully bought time.

Norman1 said
My reading of the June 21 press release is that only the interest rate on the LOC from Berkshire depends on the initial and additional investments. The LOC itself is not.

Interest rate will either be

1. 9.5% on outstanding + 1.75% on undrawn or
2. 9.0% on outstanding + 1% on undrawn

depending on certain things.  

Whether the rates on the LOC moves up depends on the Board's recommendation and NOT on how shareholders vote. The Board won't change its recommendation that shareholders should approve the 2nd tranche of the equity investment but the Board can't actually vote for shareholders. Also, the LOC and Berkshire's initial equity investment are NOT contingent on the shareholder vote on the 2nd equity investment.

Hopefully not until Labour Day. I want to re-invest maturing proceeds into a juicy HT GIC about that time.

Doug said

Correct and the plan is for the 9.0-9.5% to not apply within a couple months so they'd only have to pay the 1-1.75% standby fee, or $20 million on the $2 billion emergency "backstop" line of credit, and I'm assuming that's an annualized fee/rate so, payable monthly that'd be what...$1.66 million?

Cheers,
Doug  

After the recent sale of $250 million in residential mortgages combined with recent commercial mortgage sales, Home will likely have paid off the initial drawdown on the Berkshire LOC in a few weeks time.

The 1% standby fee will hold unless the Board for some reason decides to reverse their recommendation to accept the 2nd equity tranche. Don't see that happening, but definitely see the probability that investors reject the 2nd equity tranche in spite of the Board's recommendation as a better than 50% chance.