Home Capital Group Inc. is trying to bridge the disconnect between the need to quickly restructure its ailing business and its desire to take time crafting the right recovery plan.
In a conference call on Friday, the Toronto-based mortgage lender's directors and interim management addressed concerns from stakeholders and analysts about the viability of the business after reporting a drop in earnings and uncertainty about the company's ability to secure funding in the future.
The leaders were upbeat about plans to hire a new chief executive officer and chief financial officer, but also stressed that recent weeks of extensive reputation damage and a run on the deposits that Home Capital uses to back its mortgage portfolio would have a long-lasting negative impact.
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"I don't expect there to be any new significant transactions within the next days and weeks," former banker and Home Capital director Alan Hibben said on the call. "However, that should not be misconstrued. We will be extremely active in bringing a range of options forward and are committed to updating the market and potential partners about our operations and our portfolio."
At times, he brought a jovial mood to the discussion by playfully chiding analysts and stressing that new board members were there for the chance to turn around an important business and not for the money.
But Mr. Hibben also noted the gravity of Home Capital's struggles, saying market "confidence evaporates very quickly and returns slowly."
In April, the Ontario Securities Commission alleged the company and three executives failed to disclose fraudulent sales practices in 2015.
Home Capital has said the allegations are "without merit" and none have been proven.
Showing stakeholders that the company has stabilized is a priority for Home Capital, and a wide-range of potential funding sources and new business plans are on the table.
As Mr. Hibben put it, the company has reviewed "scenarios out the ying-yang" and has received many expressions of interest from potential investors.
More immediately pressing for the company is replacing the onerous $2-billion credit line it took out late last month, which came with a punishing interest rate of 10 per cent and an upfront fee of $100-million.
The credit line came from a consortium led by the Healthcare of Ontario Pension Plan (HOOPP) and is secured against a portfolio of mortgages. Home Capital has used $1.4-billion so far.
Home Capital has said it is planning to sell some loan portfolios to help pay down this emergency credit line.
Mr. Hibben also said the company would favour securing some financing similar to the deal that competing alternative mortgage lender Equitable Group Inc. obtained in early May.
Equitable's $2-billion financing was backed by the six largest Canadian banks in a bid to shore up funding.
"But as you can imagine, the market is thin for these sorts of things," Mr. Hibben said. "And so we will be looking at a wider range of alternatives than just a liquidity backstop. … Some of those alternatives are going to be contingent upon continuing changes in governance and management, and that's why I'm very happy that we have enough time to actually be able to execute on those."
Home Capital also addressed its recent agreement under which an "independent third party" will buy up to $1.5-billion of its commitments to new mortgages, as well as some existing mortgages and home loans that are up for renewal.
That deal will be facilitated by mortgage finance firm MCAP Corp., The Globe and Mail reported this week.
It's an agreement that the company said is not ideal and will have an impact on its business, but was a necessary step to keep Home Capital's ties to the mortgage broker channel.
"Nobody likes the fact that we're going to have to give our customers away to a third party," Mr. Hibben said. "But it gives us more than enough time to be able to execute on alternative transactions here."
Shares of Home Capital slipped by 15.5 per cent to $9.14 on Friday.
In a release early Friday, Home Capital said balances in high-interest savings accounts (HISA) at Home Trust are now at approximately $125-million, versus $128-million on Thursday.
About six weeks ago, the company had roughly $2-billion in those accounts.
The company had liquid assets of roughly $962-million as of Thursday night, versus $1.02-billion one day earlier – a drawdown of 2.8 per cent.
Niall McGee