The ‘Oracle Of Omaha’ Is All-In on Home Capital 🏡

The embattled company gets a new credit line and stock acquisition from renowned investor Warren Buffett.

For those who saw Home Capitals woes as a sign of a tumbling market, take note.

As reported in The Financial Post, Warren Buffett’s Berkshire Hathaway Inc. has come to an agreement to acquire $400 million of common shares in Home Capital and extend a new $2-billion line of credit to it’s subsidiary Home Trust. The stock purchase and line of credit will be done through Berkshire’s wholly owned subsidiary Columbia Insurance Company.

“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,” said Buffett, Berkshire’s chairman and chief executive officer in a statement.

In our opinion the faith that Warren Buffett has in Home Capital should give people some fresh confidence in Canada’s real estate market. As the ‘Wizard of Omaha’ doesn’t toss money around foolishly. Buffett and Co. were selected from several tabled offers presented to Home Capital. Buffett will pick up the ~40 million shares at a tidy discount though from the current stock price of Home Capital (TSE:HCG - $14.94 on June 21st) paying about $10 a share when it’s all done.

💵 Snapshot of the deal 💵

  • Initial investment of $153.2 million for ~16 million shares in Home Capital 📑
  • Followed by an additional $246.8 million acquisition of ~24 million shares 📑
  • Replacement of the costly 💰 credit line from a syndicate of lenders led by HOOPP (Healthcare of Ontario Pension Plan)

If nothing else this is good news for Home Capital. The rates are marginally better on the line of credit… but when you’re talking about $2-billion, every percentage point is big dollars.

What do you think – Good? Bad? Indifferent?

What do you think of the Home Capital and Warren Buffett Deal?

Are you bull-ish on the real estate market right now? Or is the market going to tank?