Another Potential Play for CFF

CMT has learned from multiple sources that another industry player appears to be planning an attempt to take over CFF Bank at the eleventh hour.

An offer for CFF Bank has currently been made by Home Capital. Reportedly, a vote to approve Home Capital’s acquisition of the bank is slated for today.

According to a pitch deck we’ve come across, as well as conversations with people knowledgeable about the potential deal, here is reportedly how it may go down:

  • Westbridge Mortgage REIT will purportedly make​ ​​a​​n​​ ​​o​​f​​f​​e​​r​​ ​​t​​o​​ Canadian First Financial Group, possibly as early as later this week.
  • If accepted, the offer would allow WestBridge to acquire a controlling interest in CFF Bank.
  • Per the documents we’ve seen, Westbridge’s offer would be a $10- to $15-million convertible debenture investment intended to ensure the bank is adequately capitalized during the takeover process and satisfy OSFI’s requirement​s. We suspect this structure is also intended to defer a more in-depth OSFI review, as is required when there is a change of control at a bank.
  • A subsequent capital raise of up to $30 million is supposedly planned to bolster bank capital and help fund the origination of higher-yielding commercial and Alt-A mortgages. That raise would supposedly be done via a public company, which WestBridge has announced plans to reverse merge into.
  • WestBridge would reportedly keep and leverage CFF’s 38 retail banking centres, which are owned by mortgage brokers.
  • Among others, the management team would be led by James Clayton, founder of MonCana Bank, which CFF Bank acquired in 2013. At the time of its sale, MonCana Bank was losing money, but reportedly losing far less than it did under the new CFF management.
  • As far as we know, as of last night, Westbridge had not presented the offer to CFF’s management or board.

If accurate, this second suitor would give CFF shareholders plenty to think about. Home Capital is a recognized, well-capitalized, OSFI-regulated entity with a known offer. WestBridge is a lesser-known entity that reportedly plans to turn around the company by slashing costs, keeping the bank instead of selling it off and teaming up with big regional funders to implement a new white-label commercial mortgage origination strategy.

Many questions remain since our information is limited. But if this pans out, shareholders may be better served with two companies vying for their precious asset, than one.

Note to Readers: We’d like to stress that at this point, despite coming from multiple sources we deem reliable, this information cannot be entirely confirmed and should not be relied on for any particular purpose.

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