DBRS Ltd. is contemplating a possible future ratings upgrade on Toronto-based alternative lender Home Capital Group Inc. (HCG) following the regulatory settlement the firm reached with the Ontario Securities Commission (OSC) on Wednesday and the firm's recent financial results.
Toronto-based credit-rating agency says that it has revised HCG's rating status from "under review with negative implications" to "under review with positive implications" based on its view that the company, "has made solid progress in restoring market confidence, including stabilizing funding, albeit at a higher cost."
DBRS notes that HCG has hired an experienced CEO, secured an equity investment from Berkshire Hathaway Inc., sold assets, made progress at resolving its legal issues and fully repaid its high-cost credit facility over the past few months. In addition, it has seen its deposits rise since the Berkshire announcement and reports that its search for a new chief financial officer is almost complete.
"These steps, especially the improved liquidity position, have lessened the concerns over the group's viability and has given HCG time to strengthen its business model," DBRS says, adding that the company's capital ratio also improved during its latest quarter.
The credit-rating agency says that its ongoing review of HCG will focus on the company's ability to attract cheaper funding, its return to sustainable profitability, and its ability to weather recently proposed regulatory changes.
DBRS says it expects to conclude its review shortly after the company's third-quarter earnings are announced and it notes that the ratings could be upgraded "if HCG is able to attract additional funding at lower costs and demonstrate a path to improving profitability."