Heartland buys remains of reverse-mortgage firm Sentinel
Heartland has completed a deal to buy the remains of what was once a billion-dollar company, for a bargain price.
The fledgling bank announced in February it would buy out Sentinel and a related Australian company and yesterday completed the deal.
The $87 million purchase price is a significant discount on the more than $1 billion valuation put on Sentinel several years ago, when it was being prepared for a public offering.
Sentinel is still New Zealand's biggest provider of reverse-equity mortgages, with 80 per cent of the market.
Reverse mortgages are used by elderly homeowners to tap into the equity in their property.
The money borrowed and interest accrued is paid back when the occupier either dies, or voluntarily leaves their home.
Sentinel was once a world leader in the niche lending product, with branches in Australia, Canada, Spain and Ireland.
But the global financial crisis dried up access to funding, and while Sentinel outlasted competitors, it eventually stopped writing new loans.
Less than two years ago, the company was technically insolvent and put into "suspended animation" pending further funding.
Now Heartland has committed to breathing new life into the sector and making reverse mortgages a core banking product.
New Zealand's ageing population and significant housing equity means there is likely to be no shortage of demand.
More than 600,000 New Zealanders are already aged 65 years or older, and the number is forecast to grow to 1.1 million in 2031.
But the industry as a whole has been awaiting a funder willing to commit to long-term liabilities to renew the supply of lending.
Industry group the Safe Home Equity Release Plans Association (Sherpa) counts Sentinel, Dorchester and Bluestone among its key members.
Sherpa executive director Rob Dowler said: "The issue of the low level of new loans in recent years has been supply of funding, not demand from consumers."
Heartland's acquisition deal was conditional on several factors, including Sentinel's owner, Seniors Money International, getting shareholder approval.
Those conditions were met yesterday, and the deal went through successfully.
The sale price was made up of $48.3m in cash, after a successful capital raising, and the issue of $38.7m worth of Heartland shares.
Seniors Money International is chaired by former prime minister Jenny Shipley and was co-founded by Chris Coon.
Coon, who also founded insurers Sovereign and Partners Life, did not respond to requests for comment on the sale price of the company.