DBRS Morningstar Comments on Home Capital Group Inc.’s Signature of Definitive Agreement to be Acquired by Smith Financial Corporation

DBRS Limited (DBRS Morningstar) notes that Home Capital Group Inc.’s (HCG or the Group) signature of a definitive agreement to be acquired by Smith Financial Corporation (SFC) has no impact on HCG’s ratings, including its Long-Term Issuer Rating of BBB (low) with a Positive trend.

The Group has announced today that it has entered into a definitive agreement (the Arrangement Agreement) to be acquired by a wholly owned subsidiary of SFC. SFC is the family holding company of Stephen Smith and has investments in a range of public and private businesses across the financial services industry, including other DBRS Morningstar-rated issuers such as First National Financial Corporation (rated BBB (low) with a Stable trend by DBRS Morningstar), Canada Guaranty Mortgage Insurance Company (rated AA with a Stable trend by DBRS Morningstar), and Equitable Bank (rated BBB with a Positive trend by DBRS Morningstar).

Under the terms of the Arrangement Agreement, subject to shareholder and other customary approvals, SFC will acquire the issued and outstanding common shares of HCG that it does not already own (90.9%) for $44.00 in cash per share, implying a value of approximately $1.7 billion for HCG. The sale would require the approval of 66 2/3% of the votes cast by HCG shareholders at a special meeting, and it is not subject to a financing condition. The Arrangement Agreement includes a go-shop period until December 30, 2022. During this time, HCG, with the assistance of its financial advisors, can actively solicit, evaluate, and enter into negotiations with third parties that are interested in acquiring the Group. If successful, the announced sale is expected to close in mid-2023.

DBRS Morningstar will review its ratings for HCG once the go-shop period concludes and there is more clarity on the transaction.

Notes:
All figures are in Canadian dollars unless otherwise noted.

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