Photographer: Mark Sommerfeld/Bloomberg

Bearish Bets on Home Capital Have Dropped to 20%

  • Some 20% of lender’s free float shorted, least in two years
  • Shares up seventh straight day, longest streak in six months

Short sellers are easing pressure on Home Capital Group Inc. as speculation builds that Canada’s embattled alternative mortgage lender may be closer to a takeover of the company or refinancing its costly rescue loan.

Short positions on the shares dropped to 20 percent, the least since July 2015, according to Markit data on Monday. The stock has also more than doubled from its low hit last month after Ontario’s securities regulator accused the company of misleading investors about mortgage fraud. It was trading up about 2 percent to C$11.97 as of 10:03 a.m. in Toronto on Monday, the seventh straight day of gains and the longest advance this year.

The Globe & Mail reported last week, without saying where it got the information, that private equity firm Catalyst Capital Group has proposed a strategic partnership that would replace Home Capital’s C$2 billion ($1.5 billion) loan from Healthcare of Ontario Pension Plan with lower-cost debt. The refinancing talk comes amid other reports that the company received preliminary takeover offers from firms including Brookfield Asset Management Inc. and Onex Corp.

Read more about the takeover speculation surrounding Home Capital

The Toronto-based lender is now the fifth most-shorted in Canada, Bloomberg data show. Shortsellers profit from price declines by selling borrowed securities and replacing them with shares bought at cheaper levels, pocketing the difference.

Lower shorts show that hedge funds may be betting the stock has reached its lows and is due for a turnaround.

The negative bets on Home Capital eased after shares dropped by a record to the lowest in over a decade on April 26 as it announced terms of the loan from HOOPP that would force it to miss financial goals. Short positions on the stock declined from a record 60 percent of free float April 24 to 41 percent by May 1, Markit data show.

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