Home Capital Group Inc. has had
its credit rating slashed again, reflecting dwindling confidence in the
beleaguered mortgage lender as depositors flee.
The rating agency DBRS said the downgrade is connected to Home Capital’s
announcement on Tuesday that it will postpone the release of its first-quarter
financial results until after the market closes on May 11. The company, which
specializes in non-prime or alternative mortgages, had planned to release its
results on May 2.
On April 19, the Ontario Securities Commission revealed allegations that the
company improperly disclosed financial information.
“DBRS considers this delay in announcing results as a negative, especially
given that the initial Ontario Securities Commission’s (OSC) hearing regarding
the Statement of Allegations made against three former members of HCG’s senior management is scheduled for May 4,
2017. These events are likely to continue to draw unfavourable attention to the
Group,” the rating agency said in a release on Wednesday evening.
DBRS lowered its rating on Home Capital to CCC from BB, which the agency
considers “very highly speculative grade quality” and one notch away from likely
default.
It also lowered the financial instrument ratings on Home Trust Company, a
subsidiary, to R-5 from R-4. This is the lowest rating, and is considered highly
speculative.
In a statement, DBRS said Home Trust has not demonstrated an ability to
stabilize its funding and liquidity after depositors withdrew money from the
company’s high-interest saving accounts – liabilities that are used to back the
trust’s non-prime mortgages.
A pension fund has set up a line of credit of as much as $2-billion to help
offset the withdrawals, but Home Capital is paying an exorbitant 22.5 effective
rate of interest on the first $1-billion drawn on the financial lifeline. As
well, questions have been raised about the fate of nearly $13-billion worth of
guaranteed investment certificates as they become due.
Home Capital’s share price collapsed last week after it announced it was
seeking a financial lifeline.
DBRS views GICs as more
stable than high-interest savings account deposits, since the majority of GICs are not redeemable ahead of their maturity
date.
The rating agency said it will continue to review the situation as it
considers the company’s ability to maintain broker relationships for mortgage
originations
and funding.
“The review will focus on the ongoing viability of HCG. One consideration is
HTC’s ability to stabilize liquidity and funding
at a reasonable cost. Another consideration is its ability to hire key senior
management,” DBRS said in a statement.
Home Capital could not be reached for comment on Wednesday evening.
Follow David Berman on Twitter: @dberman_ROB
powered by sue.ng a legal search engine