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A sold home in Mississauga, Ont., on Thursday April 20, 2017.

Mark Blinch/The Globe and Mail

Home Capital Group Inc.'s biggest investor is adding to its position even after shares of the embattled mortgage lender plunge on dwindling deposits amid allegations it misled investors.

Toronto-based Turtle Creek Asset Management Inc., which owned almost 14 percent of Home Capital as of the end of February, said "substantially all" of its 8.8-per-cent decline in net asset value in April was attributable to its investment in the alternative mortgage provider. In an April 28 email to clients, Turtle Creek praised the lender for its low loss rate, underwriting practices and diversified funding sources.

"To be clear, we have not sold shares; indeed, the opposite is the case," according to the letter, signed by Chief Executive Officer Andrew Brenton, managing partner Jeffrey Cole, and managing partner Jeffrey Hebel. "We are obviously not happy with recent developments at Home Capital, but we remain focused on long-term value creation for you, our fellow investors."

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Read more: The rise and fall of Home Capital

Turtle Creek didn't immediately respond to a request for comment. Shares of Home Capital fell 16 per cent at 11:24 a.m. Toronto time, extending the decline this year to 79 per cent.

The trio said the market's loss of confidence in Home Capital is puzzling in light of the economic backdrop, citing the strong rate of home price appreciation in the Toronto area, the lack of interest rate increases, low unemployment, subdued arrears, and -- until last week -- no drop in the firm's overall profitability.

"Home Capital has had more than its share of difficulties over the past couple of years, some self-induced and others created by vocal naysayers who are very negative on the Canadian housing market and alternative mortgage lenders in particular," they wrote.

Initial Draw Down

Others major shareholders have fled for the exits. The firm's second-largest investor, QV Investors Inc., sold its almost 8.4 million shares on Friday, with Vice President Ian Cooke telling investors they made "an investing mistake." Home Capital's fourth-largest shareholder, Mawer Investment Management Ltd., divested its 4.3 percent stake from April 24th through the 27th. Chief Investment Officer Jim Hall said the Calgary-based firm doesn't invest in "things that are on fire."

Home Capital said on Monday it's getting its initial draw down of $1-billion on the $2-billion credit line it secured last week from a group led by the Healthcare of Ontario Pension Plan. The stock slid another 22 per cent on Monday in Toronto amid continued pressure on its deposit base. Clients have pulled about $1.6-billion from Home Capital's high-interest deposits, a decline of about 80 percent in a month. The company has almost C$13 billion in guaranteed investment certificates.

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"What has surprised most market participants is the speed and severity of the loss of confidence in the company," Turtle Creek executives wrote in the letter, obtained by Bloomberg News. "The fact that this is happening in the face of an exceptionally strong credit environment makes it all the more unusual."

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