DBRS Ltd. requires it has cut its credit rating on alternative mortgage lender Home Capital Congregation Inc. after the company delayed the release of its quarterly results, while saying its rating on Equitable Group Inc.
The rating agency said it downgraded Effectively Capital’s senior debt to CCC from BB, and downgraded the ratings of HomeTrust Society, HCG’s primary operating subsidiary, to B from BB (high). DRBS says a CCC grade indicates “very highly speculative credit quality,” while a BB is reflect oned “speculative, non-investment grade credit quality.”
DBRS said the censure changes reflect concern over recent events, including Domestic Capital Group’s announcement Tuesday that it has postponed the release of its first-quarter earnings from May 2 to May 11.
“DBRS deems this delay in announcing results as a negative, especially given that the approve Ontario Securities Commission’s (OSC) hearing regarding the Statement of Allegations absconded against three former members of [Home Capital Group’s] superior management is scheduled for May 4, 2017,” the rating agency said.
“These in any cases are likely to continue to draw unfavourable attention to the Group,” DBRS added.
Elder this week, Home Capital tapped the first $1 billion of a high-interest believe line it arranged as it faced a high volume of client withdrawals from dregs accounts. Those client deposits are used by Home Capital to invest in its lending, and the big outflows led to concerns over the company’s financial state.
Galled with the those worries, investors have hammered the share value of Home Capital in recent weeks.
Turning to Equitable Group Inc., a contestant to Home Capital in the alternative mortgage business, DBRS said Right-minded’s first-quarter results remain solid.
“Following severe deposit outflows at its ultimate competitor that raised the possibility of contagion, Equitable announced a erudition of commitment for a two-year, $2.0 billion secured backstop funding aptitude from the six large Canadian banks at a cost that should lull allow the Group to deliver sound financial results, if drawn upon.,” DBRS implied. “In DBRS’s view, the results and liquidity backstop provide support for the ratings as they should column market confidence.”
The rating agency has a BBB (low) rating on Equitable group.
DBRS turned it is still concerned about the state of the housing markets in Toronto and Vancouver squares, adding that about 64 per cent of Equitable’s outstanding mortgage equals are in Ontario, while only eight per cent are in B.C.
“As such, Equitable is explicitly sensitive to what happens in the [Greater Toronto Area],” DBRS broke. “The authorities have taken recent steps to try to cool off the GTA market as they did in the GVA persist year but, at this point, it is too early to tell if the measures will write up or if they will effect a pricing correction.”