Company Name : Home Equity Income Trust
Company Profile
Filing Date : 6/14/2002
Offering : TBD
Price : $10.00 per Unit
Closing Date : TBD
Exchange : TSX
Eligibility : British Columbia, Alberta, Saskatchewan, Manitoba, Ontario, Quebec, New Brunswick, Nova Scotia, Prince Edward Island, Newfoundland and Labrador
Underwriters :
RBC Dominion Securities Inc., National Bank Financial Inc., TD Securities Inc., Raymond James Ltd.
Associations :
Issuer's Law Firm : Torys
Underwriter's
Law Firm : Osler, Hoskin & Harcourt LLP
Auditor : Ernst & Young LLP
Transfer Agent : Computershare Trust Company of Canada
Business Description :
Home Equity Income Trust ("HOMEQ") is an unincorporated open-end investment trust established under the laws of the Province of Ontario. HOMEQ will invest in Reverse Mortgage portfolios with the objective of providing stable distributions to Unitholders while preserving capital. HOMEQ's policy is to distribute 100% of its Distributable Cash to Unitholders, payable monthly.
The Manager is a wholly-owned subsidiary of Canadian Home Income Plan Corporation (CHIP).
To achieve these objectives, the Trust will indirectly acquire an interest in a portfolio of over 5,200 Reverse Mortgages (which are the Existing Mortgages) through the investment in partnership interests of the CHIP Limited Partnerships and in adjustable rate notes rated AAA by DBRS and S&P that are serviced by a portion of these Reverse Mortgages. The Trust will also have the right to purchase all Eligible Reverse Mortgages originated by CHIP from time to time after the Closing Date pursuant to the Origination Agreement. The Trust will acquire such Eligible Reverse Mortgages (which will be New Mortgages) at prices that are expected to be accretive to the Trust. The Trust will leverage the equity of Unitholders by issuing highly rated debt in the capital markets in order to optimize the return on its portfolio of Reverse Mortgages. Unitholders will benefit from the spread between the interest rates accruing on the Reverse Mortgages and the interest rates payable on debt incurred to finance the investment in Reverse Mortgages.
A Reverse Mortgage is a type of residential first mortgage that permits qualifying homeowners to convert a portion of their home equity into cash while remaining in their home. The advantage of a Reverse Mortgage, particularly to homeowners who have significant portions of their wealth tied up in their home, is that they are not required to repay any principal or accrued interest on such mortgage loan until maturity, which is generally when they cease occupying the home. Recourse under the Reverse Mortgage is limited to the proceeds from the sale of the home at maturity. The amount advanced under a Reverse Mortgage on origination will typically represent approximately 28% to 33% of the home's Appraised Value. The actual amount advanced is derived using expected occupancy statistics, house value appreciation forecasts and interest rate forecasts. These assumptions are used to derive an initial loan amount which will increase through the accrual of interest over the term of the Reverse Mortgage such that the total outstanding balance is expected to be fully recovered from the proceeds of sale when the homeowner ceases to occupy the house.
The Trust will have the opportunity, on an ongoing basis after the Closing Date, to develop a portfolio of New Mortgages by acquiring Eligible Reverse Mortgages to be originated by CHIP pursuant to the Origination Agreement. The Trust will acquire Eligible Reverse Mortgages from CHIP on an agreed formula basis or, outside specified pricing formulas, on a negotiated basis that is related to the Weighted Average Cost of Capital of the Trust and which is expected to be accretive to the Trust.
Industry Category : Trust Units |
