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ANDREW WILLIS

Thursday, October 26, 2017

Following in the footsteps of Berkshire Hathaway, ECN Capital Corp. is moving into lending on affordable housing by acquiring Florida-based Triad Financial Services Inc. for $100-million (U.S.).

Toronto-based ECN Capital is buying a family-owned company that lends for what are known as "manufactured homes," or mobile homes, which make up 10 per cent of the U.S. market and typically cost $80,000 to $150,000. Triad has been in the business since 1959, focused on teaming with builders to lend money to home buyers with strong credit ratings. The company accounts for approximately 15 per cent of the U.S. market, with operations in 43 states.

The dominant player in U.S. manufactured home production and financing is Berkshire Hathaway Inc. subsidiary Clayton Homes, which holds about a 50-per-cent market share, and is willing to lend to buyers with weak credit ratings.

Berkshire acquired the business in 2003 for $1.7-billion.

Jim Nikopoulos, president of ECN Capital, said manufactured home financing is consolidating around the largest players in the sector and ECN expects to build its market share over time by acquiring rival firms, while continuing to focus on high-quality loans.

Builders of manufactured homes work with lenders such as Triad because these specialty financial companies have systems that can make decisions on loans in minutes; U.S. banks typically take several days to decide on a mortgage or home equity loan. "Triad is a pioneer in the manufactured housing industry and a market leader with an incredible history," Mr. Nikopoulos said.

ECN projects Triad will lend more than $600-million in 2018 and, in an investor presentation, the Canadian company forecast the acquisition will increase 2018 adjusted net income by 22 per cent. The transaction is expected to close in the first quarter of 2018.

There are 8.6 million manufactured homes in the United States and demand for this type of dwelling is increasing at roughly 10 per cent annually after bottoming out during the financial crisis in 2009 at 49,000 homes per year. Industry research calls for 135,000 homes to be built annually by the year 2020.

In peak years, during the late 1990s, builders shipped 375,000 manufactured homes annually.

Buying Triad is part of a strategic shift at ECN Capital, which was spun out from Element Fleet Management Corp. in 2016. ECN Capital also acquired a U.S. home improvement financing business this year for $410-million (Canadian): Service Finance Holdings LLC, which lends to consumers buying appliances, furnaces, air conditioners and solar power systems. At both Triad and Service Finance, ECN makes a loan, then sells the debt to a syndicate of banks and credit unions rather than holding the loans. This means ECN earns fees for originating and servicing debt, but needs relatively little capital to run its business.

ECN is also raising money by exiting less profitable legacy lines of business. In August, it sold a portion of its rail car financing business for $1.44-billion and in April, the company sold its commercial and vendor finance business to a U.S. bank for $1.25-billion (U.S.).

"The Triad acquisition fits squarely within ECN Capital's strategic plan for the redeployment of capital," said Steven Hudson, CEO of ECN Capital. Mr. Hudson said there are a number of other opportunities to expand ECN in "capital-light" sectors, and noted that the company looked at dozens of potential acquisitions, worth a total of $55-billion, before deciding to acquire Triad.

ECN Capital (ECN) Close: $3.89, down 3¢

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