Yellow Brick Road to beef up lending with $300m facility

Yellow Brick Road to beef up lending with $300m facility

Update: Since this story was published YBR has advised that negotiations with the bank have terminated. Click here for more. 

Financial services group Yellow Brick Road (ASX:YBR) is on track to beef up its loan business after confirming that one of the big four banks is poised to provide it with a $300 million residential mortgage-backed securities warehouse facility.

The move comes a week after the company, led by Mark Bouris, received an unsolicited takeover bid from corporate raider Sir Ron Brierley's Mercantile Investment Company.

The offer, pitched at 9c a share, has been criticised by Bouris as opportunistic and that it 'materially' undervalues the company.

Yellow Brick Road today revealed that it has been negotiating to secure the new warehouse facility through an 'extensive market sounding process' over the past few months.

It does not name the bank supplying the facility, but will only reveal that it has entered into exclusive negotiations with the bank.

"We are building towards entering the securitisation market for a number of years," says Bouris.

"In fact, it was always our intention to do so once we achieved a substantial distribution business, which we have via our YBR-branded shopfront franchisee business and Vow independent broker business.

"The power of this distribution, coupled with our own credit and funding capacity, will be formidable, and the timing could not be better given the present and foreseeable gaps in the market in certain categories of mortgage products and the renewed interest in the supply of money coming from the debt capital markets to fill these gaps."

A binding agreement for the facility remains subject to due diligence and credit approvals.

Most of the group's loans have been written by Macquarie Bank, NAB, Bendigo Bank and Adelaide Bank.

Bouris has previously expressed his desire to fund loans through securitisation, although a jump in funding costs had prevented the move in the past.

At the end of FY17, Yellow Brick Road had a loan book totalling $44.1 billion, which was up 17 per cent on a year earlier.

After three years of losses, Yellow Brick Road eked out a $1.17 million net profit in FY17.

It posted a profit of $234,000 earlier this year in the first half of FY18, which was down 40 per cent from a year earlier. It has yet to report its latest full-year result.

Mercantile has a 19.97 stake in Yellow Brick Road and in its takeover bid expressed dissatisfaction with the company's performance since buying into the company in 2016.

Yellow Brick Road has yet to issue a formal recommendation on the takeover offer.

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