BUFFETT COMES TO HOME CAPITAL'S RESCUE
Who saw this one coming? The world’s most famous investor is stepping into Home Capital Group’s corner. Here’s the breakdown:
-Berkshire’s Columbia Insurance Unit will pick up a 38.39 per cent stake in Home Capital in two tranches. Home Capital is asking the TSX to exempt the first tranche, for 16 million shares, from a rule that ordinarily requires a shareholder vote as a result of the discount, pointing out Berkshire does not want “the delay and uncertainty of shareholder approval.” To help make its case to the TSX, HCG says its board has determined the embattled lender is “in serious financial difficulty.” I’ve asked the TSX to comment on the approval process.
-Berkshire, of course, isn’t a charity. The equity investment comes at a 20 per cent discount to Home Capital’s 20-day volume-weighted average price. Will be interesting to see how shareholders react to that -- and the massive dilution.
-A Berkshire unit will also provide Home Capital with a new $2-billion credit facility that comes at a marginally lower cost than the emergency HOOPP line, which Home Capital is looking to repay and terminate. Home Capital also says it expects to be able to repay the new line “over the coming months.”
-Home Capital Chair Brenda Eprile says the deal with Berkshire “will reward all our investors for their patience and loyalty.” Warren Buffett says Home Capital has “strong assets”, helping to make this a “very attractive investment.”
The most important question today is whether Buffett’s backing is enough to restore confidence. We’ll also gauge how this affects the short thesis on HCG. And we’re chasing reaction from the Bank of Canada and finance ministry.
Beyond all that, there’s some instructive colour in today’s release we’ll weave into our reporting:
-Berkshire will not get a seat on Home Capital’s board of directors. I’d like to know why that wasn’t a pre-requisite.
-Home Capital says it received “wide-ranging” non-binding proposals, including for the sale of the entire company.
-Home Capital says it required “a strong corporate sponsor” to offset regulatory and economic risk.
-Home Capital is warning any further policy moves to cool the housing market “could have a serious and adverse effect” on its business.
-Home Capital says it will continue to pursue asset sales in the future.
BNN Advisor
Vancouver: Housing concerns cross generations
Winnipeg and Saskatchewan: The loonie and U.S. protectionism weigh on Central Canada
Yellowknife and Whitehorse: The hurdles of northern living and aboriginal issues
OTHER NOTABLE STORIES:
-The B.C. NDP-Green alliance is champing at the bit to topple Christy Clark. The Liberal government will present its plan for the province in a throne speech late today. Advance reporting suggests Clark will sprinkle in some goodies in an attempt to undermine the NDP-Green alliance. We'll establish what's at stake for controversial issues like housing, Trans Mountain and the Site C hydro project.
-A couple reports floating around with mid-month data sent by the Toronto Real Estate Board to its members, showing sales and prices falling year-over-year. We've asked TREB to confirm the numbers.
-After coming within a hair of slipping below US$42/barrel yesterday, oil is little changed this morning.
-Export Development Canada released a report this morning showing confidence is rising among Canada’s exporters, notwithstanding uncertainty in the States. We’ll speak with EDC’s chief economist at 12:30 p.m. ET.
NOTABLE RELEASES/EVENTS
-Notable data: Canadian retail sales, StatsCan EI report
-9:00 a.m. ET: U.S. Commerce Department holds public hearing on aluminum imports
-9:30 a.m. ET: U.S. Senate health care bill unexpected to be revealed
-12:30 p.m. ET: Transport Minister Marc Garneau holds media call from Italy
-1:00 p.m. ET : B.C. legislature starts new session. Throne speech likely around 5:00 p.m. ET.
Every morning BNN's Managing Editor Noah Zivitz writes a ‘chase note’ to BNN's editorial staff listing the stories and events that will be in the spotlight that day. Have it delivered to your inbox before the trading day begins by heading to www.bnn.ca/subscribe.
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