U.S. buyout firms Apollo Global Management, Blackstone Group and Centerbridge Partners are among potential suitors studying bids for Canada’s biggest alternative mortgage lender, Home Capital Group Inc, which sought emergency funding last week, people familiar with the matter told Reuters.
Canada’s Brookfield Asset Management and Fairfax Financial Holdings are among the other firms interested in buying Home Capital, the people said, speaking on condition of anonymity as the discussions are private.
Home Capital said last week it had hired RBC Capital Markets and BMO Capital Markets “to advise on further financing and strategic options” and after securing a high-interest $2 billion credit line.
The stock, up about 7 percent, extended its gains after the Reuters report, rising as much as 16 percent to the day’s high of $8.07, giving Home Capital a market value of about US$378 million. It closed up 11.4 percent.
The potential bidders are working with investment banks as they consider their options and are likely to wait until a Canadian regulator holds a hearing on Thursday, the people added. The Ontario Securities Commission has accused Home Capital of making “materially misleading statements” to investors and named its current chief financial officer and two former chief executive officers.
Home Capital, Brookfield, Blackstone and Centerbridge declined to comment. Apollo and Fairfax did not immediately respond to requests for comment.
Home Capital is expected to sell at a discount to its book value, which is about $1.6 billion, the people said. Non-bank lenders usually fetch between one to two times book value, they added.
Potential buyers are evaluating bids for the whole or part of Home Capital, the people said. Some smaller companies are looking at parts of Home Capital.
The loan from the Healthcare of Ontario Pension Plan, which was secured last week, has bought Home Capital some time, so a sale would not have to be rushed, the people said.
Some potential buyers believe the asset could be picked up at a good price and may look to unlock value in a turnaround of the company once current issues surrounding the company are resolved, the people said.
Home Capital has seen nearly three-fourths of its high interest savings deposits being pulled out. Its shares have shed 72 percent of their value since March 27. On March 27, it lost Chief Executive Martin Reid and last month founder Gerald Soloway agreed to step down from the board.
It is not clear yet if Home Capital will sell itself to one buyer or if the assets would be broken up to multiple buyers, the people said.
Canada’s six biggest lenders have so far showed little interest in Home Capital, the people said.
Home Capital also delayed filing its first-quarter earnings report by eight days to May 11, from the company said in a statement on Tuesday.
(Reporting by John Tilak in Toronto and Jessica DiNapoli in New York; Editing by Nick Zieminski and Andrew Hay)
(This story has been edited by Kirk Falconer, editor of PE Hub Canada)
Photo courtesy of Reuters/Chris Helgren