Street is a privately held non-bank mortgage lender that launched in 2007.
Counsel is a private equity firm that trades on the TSX (Symbol: CXS, Last trade $0.69, 77.2 million shares outstanding).
Both companies have signed “a non-binding letter of intent” for Counsel to acquire 100% of Street’s outstanding equity. The deal is subject to further negotiation and approval, but is expected to close in April 2011, according to this release.
There’s no word yet on a price, but CXS is a reporting company so perhaps that will come out in the wash if/when the deal closes.
Allan Silber, chairman and CEO of Counsel says, “The long-term fundamentals for (the mortgage broker) industry are compelling.”
Lazaro DaRocha, Street’s Chief Finance & Risk Officer, adds, “We believe this transaction will be beneficial to our broker network. Counsel Corp. has a tremendous amount of financial services and capital markets expertise, as well as strategic knowledge of the broker channel gained when they launched FirstLine Trust.”
(FirstLine Trust is the predecessor to FirstLine, one of the biggest broker lenders. Counsel sold FirstLine Trust to Manulife in 1991 after fashioning it into Canada’s dominant mortgage-backed securities (MBS) player in the 1980’s. Manulife then sold it to CIBC in 1995.)
Pending completion of the deal, “All existing products and services will be available with no changes,” says Lazaro. “Over the next couple of months, we will work with our broker network to develop (additional) innovative products and services.”
So, what attracted Counsel to Street? Stephen Weintraub, Counsel’s EVP, said Counsel sees value in Street becoming a direct Canada Mortgage Bond (CMB) issuer, which he hears may happen “soon.” (CMB issuer status allows for more profitable lending on securitized mortgages—the bulk of Street’s business.) He also says Street has a “great management team with a clean good business.”
If the deal pans out, Weintraub said, “this could be transformative for Counsel.” He added that Street would end up accounting for the majority of Counsel’s revenue.
Counsel is also a shareholder in real estate finance company, Terra Firma.
Rob McLister, CMT
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