Berkshire Hathaway has agreed to acquire $400 million of Home Capital stock and provide a new $2 billion line of credit.
“Home Capital’s strong assets, its ability to originate and underwrite well-performing mortgages, and its leading position in a growing market sector make this a very attractive investment,” says Warren Buffett, Berkshire Hathaway chairman and CEO.
Berkshire will make an initial investment of $153 million in Home Capital, which is expected to close next week. It will be followed by an additional investment of $247 million, which requires shareholder approval. Berkshire will own about 38.4% of the company once the deal is completed.
The investment “addresses Home Capital’s near-term requirements for additional liquidity and a lower-cost credit agreement,” notes Brenda Eprile, chair of Home Capital’s board of directors.
The new credit agreement is cheaper than the one provided by the Healthcare of Ontario Pension Plan (HOOPP) and a syndicate of lenders.
The interest rate on outstanding balances will be 9.5% (from the current 10%) and fall to 9% when the initial investment is completed. The standby fee on undrawn funds will be 1.75% (from the current 2.5%) and decrease to 1% when the initial investment is completed. There also won’t be an upfront commitment fee. HOOPP charged a non-refundable commitment fee of $100 million.
Home Capital says it will draw on the new credit agreement to repay all amounts outstanding under the existing credit agreement, which will be terminated. The company also expects to repay all amounts outstanding under the new credit agreement over the coming months.
Berkshire Hathaway is the second-largest company in the United States in terms of sales, according to Fortune. And Warren Buffett is currently the world’s fourth-richest person in the world, according to the Bloomberg Billionaires Index.