Eclipse Residential Mortgage Investment Corporation Announces a Shareholder Meeting to Approve the Sale of the Mortgage Portf...
March 21 2019 - 5:48PM
(TSX: ERM) Eclipse Residential Mortgage Investment
Corporation (“
Eclipse” or the
“
Corporation”) announces that it is calling a
special meeting of holders (the “
Shareholders”) of
common shares (the “
Common Shares”) to consider
and vote upon an extraordinary resolution approving the sale of all
or substantially all of the assets of the Corporation, the
voluntary delisting of the Common Shares from the Toronto Stock
Exchange (the “
TSX”) and the distribution of the
remaining net assets and voluntary dissolution of the Corporation
(together, the “
Proposed Transactions”).
The Corporation has had strong performance since
its inception in June 2013. Since inception, the Corporation
increased its monthly dividend twice and increased its net book
value by investing in a diversified portfolio (the
“Portfolio”) comprised primarily of interests in
single family residential mortgages that seeks to preserve capital
and generate sufficient income to permit the Corporation to pay
monthly dividends. A total of $3.76 per share has been paid in
dividends since inception, and when combined with the growth in net
book value, this represents an average return of 8.1% per annum.
Despite this strong performance, management and MCAP Financial
Limited Partnership (the “Mortgage Consultant”)
believe that policy changes introduced over the past several years
by the federal and provincial governments and other regulatory
bodies, intended to address housing market risks, have continued to
have a slowing effect on housing activity. These changes have
affected the ability of the Corporation to execute its investment
strategy to acquire junior tranches of uninsured first mortgages.
As previously disclosed by the Corporation, the Corporation has not
been able to acquire any newly originated junior tranche mortgages
since 2017. Based on advice from the Mortgage Consultant, the board
of directors of the Corporation (the “Board”) and
Brompton Funds Limited (the “Manager”) came to the
unanimous conclusion that the Corporation would not be able to
continue to invest in sufficient volumes of appropriate mortgage
investments at current Portfolio yields that match the
Corporation’s original business strategy. Furthermore, if this
trend continues and junior tranches of uninsured mortgages are
unavailable for purchase, the Corporation will not be able to
continue to maintain the Corporation’s current dividend level.
Accordingly, the Corporation and the Mortgage Consultant reported
that they would explore investment and strategic alternatives in
respect of the Portfolio.
Following such strategic review of Portfolio
options, which included the sale of the Portfolio and investigating
the purchase of alternative investments, the Corporation entered
into an asset purchase agreement dated March 21, 2019 (the
“Asset Purchase Agreement”) with YTM Capital
Mortgage Income Fund (“YTM”) to sell the Portfolio
to YTM (the “Asset Sale”). The sale provides an
opportunity to realize an attractive value for the Corporation’s
assets in an environment where the Common Shares trade at an
approximate discount of 5% to the net book value of the
Corporation. The purchase price in respect of the Portfolio (the
“Purchase Price”) will be determined as at the
closing date of the Asset Sale and will be comprised of cash
consideration equal to the principal amount of the Portfolio plus
accrued and unpaid interest as at the closing date. If the closing
of the Asset Sale occurred on March 21, 2019, the Corporation would
receive aggregate cash consideration of approximately $45.3
million, which would result in dissolution proceeds of
approximately $9.65 per Common Share, a premium of approximately
4.7% to the 20-day volume weighted average price of the Common
Shares on the TSX. The Corporation expects the actual aggregate
proceeds of the Asset Sale to be different than $45.3 million as
run-off and transactions in the Portfolio continue to occur prior
to closing. Until the closing date, the Corporation expects to
continue its monthly distributions.
In considering the Asset Sale, the Corporation
formally engaged MNP LLP (“MNP”) to provide an
opinion (the “Fairness Opinion”) with respect to
the fairness of the Asset Sale to the Corporation. The Fairness
Opinion states that, based upon and subject to the assumptions,
limitations and qualifications set out therein, MNP is of the
opinion that as at March 19, 2019, the Asset Sale is fair, from a
financial point of view, to the Shareholders.
The Board has determined that the
Proposed Transactions are in the best interests of the Corporation.
Accordingly, the Board recommends that Shareholders vote in favour
of the extraordinary resolution implementing the Proposed
Transactions.
Eclipse will hold a special meeting on or about
May 8, 2019 to consider and vote on the Proposed Transactions (the
“Meeting”). Shareholders of record at the close of
business on April 8, 2019 will be entitled to vote at the Meeting.
Details of the Proposed Transactions will be further outlined in
Eclipse’s notice of meeting and management information circular
that will be prepared and delivered to Shareholders in connection
with the Meeting and will be available on www.sedar.com on or about
April 16, 2019.
In order to become effective, the extraordinary
resolution implementing the Proposed Transactions must be approved
by a two-thirds majority of Shareholders present in person or
represented by proxy at the Meeting or any adjournment or
postponement thereof. Affiliates of both the Manager and MCAP
Commercial LP, an affiliate of MCAP Financial Limited Partnership,
are Shareholders in the Corporation and intend to vote in favour of
the Proposed Transactions. Certain officers and directors of the
Corporation also intend to vote in favour of the Proposed
Transactions. If approved, the Proposed Transactions are expected
to be implemented in or about mid-May, 2019.
About Brompton FundsBrompton
Funds, a division of Brompton Group which was founded in 2000, is
an experienced investment fund manager with over $2 billion in
assets under management. Brompton’s investment solutions include
TSX-traded funds and mutual funds. For further information, please
contact your investment advisor, call Brompton’s investor relations
line at 416-642-6000 (toll-free at 1-866-642-6001), email
info@bromptongroup.com or visit our website at
www.bromptongroup.com.
About MCAP One of Canada’s
largest mortgage financing companies, MCAP originates and services
all mortgages for Eclipse. MCAP has more than 30 years of
experience underwriting and servicing Canadian Single-Family
Residential Mortgages, with over $74 billion in mortgage assets
managed for banks, lifecos, credit unions and institutional
investors.
Certain statements contained in this news
release constitute forward-looking information within the meaning
of Canadian securities laws. This news release includes
forward-looking information and statements pertaining to, among
other things, the Proposed Transactions, the receipt of applicable
regulatory and third-party approvals for the Proposed Transactions,
completion of the Proposed Transactions and consideration to be
received by the Shareholders upon completion of the Proposed
Transactions. In some cases, forward-looking information can be
identified by terms such as “may”, “will”, “should”, “expect”,
“plan”, “anticipate”, “believe”, “intend”, “estimate”, “predict”,
“potential”, “continue” or other similar expressions concerning
matters that are not historical facts. Actual results may vary from
such forward-looking information. Investors should not place undue
reliance on forward-looking statements. These forward-looking
statements are made as of the date hereof and we assume no
obligation to update or revise them to reflect new events or
circumstances.
Numerous risks and uncertainties could cause the
actual events and results to differ materially from the estimates,
beliefs and assumptions expressed or implied in the forward-looking
statements, including, but not limited to: the conditions to the
consummation of the Proposed Transactions may not be satisfied or
waived; risks relating to the failure to obtain necessary third
party and regulatory approvals for the Proposed Transactions; the
Proposed Transactions may be modified, restructured or terminated;
and events or series of events may cause business
interruptions.