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Alternative mortgage lender Home Capital Group Inc. has secured a smaller, less expensive credit line from two Canadian banks to backstop any unexpected funding needs.

Starting in July, the two-year, $500-million credit facility will replace an existing $2-billion line of credit from Berkshire Hathaway Inc. – the firm run by billionaire investor Warren Buffett, which is Home Capital’s largest shareholder.

As Home Capital continues to recover from a funding crisis sparked by a sudden run on its deposits last year, the company has been looking to negotiate a less costly safety net. But executives at the lender stressed that the switch to secure backup credit from two unidentified banks does not signal any change in Berkshire’s commitment to owning Home Capital shares.

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“Berkshire’s view was this [the credit facility] is not their sweet spot, this is not an area of expertise for them,” said Yousry Bissada, Home Capital’s chief executive, in an interview. Berkshire didn’t want to repeat the credit line after it expires in June, and Home Capital sought a replacement credit line elsewhere “with their full consensus,” he added.

Home Capital held its annual meeting in Toronto on Wednesday, and Mr. Bissada reassured shareholders that the mortgage lender maintains a “very good relationship” with Berkshire. “We communicate with them regularly,” he said, but described the interactions as “low-key.”

Until the end of June, Home Capital is paying Berkshire a 1-per-cent standby fee on the $2-billion credit line and would pay 9-per-cent interest were it to draw funds. That deal replaced an even more costly line of credit Home Capital agreed to last year from the Healthcare of Ontario Pension Plan (HOOPP), when the mortgage lender was desperate for stopgap funding and facing the prospect of collapse.

Under the new $500-million arrangement, Home Capital will pay a 0.75-per-cent up-front commitment fee, a 0.6-per-cent annual standby charge on any unused funds, and an interest rate on any funds it draws equal to a Canadian benchmark rate – the Canadian Dollar Offered Rate (CDOR) – plus 150 basis points (100 basis points equal one percentage point).

Home Capital does not intend to draw on the new credit facility, as chief financial officer Brad Kotush told shareholders that the company has “more than enough liquidity to deal with normal volatility.” But it is a sign of growing confidence in the company’s creditworthiness.

Last week, Home Capital reported a $34.6-million profit for its first fiscal quarter, as well as a sharp increase in the volume of new mortgages it issued in the first three months of the year. But shareholders who have been hoping to see Home Capital start paying dividends again will need to be patient: “We don’t know when we’re going to reinstate the dividend,” Mr. Kotush said, and the company likely won’t consider it until the next fiscal year.

Though Home Capital continues to show signs of improvement in its financial results, the firm still faces stiff challenges in rebuilding its business at an uncertain juncture for Canada’s mortgage market. Neither Mr. Bissada nor his peers at large banks can predict the full impact of new stress testing on uninsured mortgages, introduced in January by Canada’s banking regulator, which make it harder for some borrowers to qualify for loans, or to switch lenders.

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At the same time, Home Capital must strike a delicate balance: Tightening its risk appetite to prove that past problems with mortgage fraud are firmly in the past, while also trying to grow the business. “We believe we don’t have to take risks on the fringe. We can stay to our core, we can stay within our risk parameters,” he said. “We’ve got to move with speed, but smartly.”

On Wednesday, Home Capital also elected two new directors: Lisa Ritchie and Paul Derksen, both of whom were formerly executives at Sun Life Financial Inc. Bonita Then and Jacqueline Beaurivage both left the board, as has Brenda Eprile, who stepped down as chair after Wednesday’s meeting, as expected.

The most recent turnover continues a year-long process to revamp Home Capital’s executive and board ranks, signalling a break from the regime that steered the company into last year’s crisis.

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