Builders Capital Mortgage: Bolstering Growth with Second Bond Offering

Builders Capital Mortgage Corp. (BCF), a leading mortgage lender specializing in short-term, residential construction financing, has announced its anticipated second closing of a bond offering. This strategic move aims to raise additional capital, fueling the company's growth and expansion in Western Canada. The bond offering, expected to close on January 6, 2025, follows the successful first closing in October 2024, which raised $7.25 million.

The second tranche of the offering seeks to raise $4.25 million, with Builders Capital 2019 Ltd., a private company owned and controlled by Sandy Loutitt, the CEO and a director of BCF, intending to participate. As consideration, 2019 will transfer mortgages held by it to the company, worth approximately $4.25 million. This transaction aligns with BCF's objective of funding or acquiring additional short-term, residential construction mortgages in Alberta and British Columbia.



The participation of insiders, including Loutitt, in the bond offering indicates confidence in the company's growth prospects. Loutitt's indirect ownership of around 20% of common shares and 19.44% of Class B shares reflects a significant stake in the company, further demonstrating his commitment to its success. However, the participation of insiders also raises concerns about potential conflicts of interest. To address this, BCF has taken several steps to ensure the fairness and transparency of the transaction. The terms of the offering and Loutitt's participation were negotiated with an independent special committee of directors, and the board of directors unanimously approved the offering, with Loutitt abstaining from voting.



The use of proceeds from the second tranche of the bond offering will be allocated towards funding or acquiring short-term, residential construction mortgages in Alberta and British Columbia. This aligns with BCF's investment objective of generating attractive returns relative to risk while maintaining capital preservation. By diversifying its mortgage portfolio across Western Canada, BCF can mitigate risks and provide stable distributions to shareholders.

While the bond offering presents opportunities for financial growth, it is crucial to consider the potential risks and implications for shareholder value. As a related party transaction, the offering falls under the purview of Multilateral Instrument 61-101, which aims to protect minority security holders. BCF has relied on exemptions from formal valuation and minority shareholder approval requirements, given that the fair market value of the bonds and consideration received will not exceed 25% of the company's market capitalization. The company's reliance on these exemptions may raise concerns about fairness and transparency. However, BCF has taken steps to mitigate these issues by involving an independent special committee and securing board approval.

In conclusion, Builders Capital Mortgage Corp.'s second bond offering is an essential step in the company's growth strategy. The offering provides an opportunity to fund or acquire additional short-term, residential construction mortgages, diversifying the company's portfolio and generating attractive returns for shareholders. However, the participation of insiders and related parties in the offering raises concerns about potential conflicts of interest, which BCF has addressed through various safeguards. As the company continues to grow and expand, it is essential to monitor the terms and conditions of the offering, ensuring they remain commercially reasonable and fair to minority shareholders.