Brookfield Asset Management Ltd.

is getting into the Canadian

mortgage

business in a big way, teaming up with

Birch Hill Equity Partners Management Inc.

to buy a majority stake in

First National Financial Corp.

in a $2.9-billion transaction.

Brookfield is already a significant player in mortgage insurance, following its 2019 purchase of a majority stake in Genworth MI Canada. The balance of Genworth, now called Sagen Mortgage Insurance Co. Canada, was purchased the following year.

First National underwrites and services mostly prime residential — single-family, multi-unit — and commercial mortgages. With more than $155 billion in mortgages under administration, it is one of Canada’s largest non-bank mortgage originators.

Brookfield’s strategy of pursuing growth in the non-bank mortgage segment of private credit goes beyond the potential to integrate mortgage lending and insurance in Canada. The global asset manager has already expanded into the United States with the spring purchase of New York-based mortgage lender Angel Oak Cos. LP.

Over the past decade, Angel Oak has originated more than US$30 billion in residential mortgage loans and issued over 60 securitizations, a pace that was expected to accelerate as a result of “growth in borrower segments that are underserved by traditional lenders,” Brookfield said in April.

Brookfield’s growing credit division, which encompasses partnerships with industry players such as Oaktree Capital Management Inc. and 17Capital LLP, already manages more than $300 billion of assets globally.

The division focuses on a range of private credit investment strategies, including infrastructure, renewables, real estate, asset-backed and corporate credit, with return profiles spanning investment grade, sub-investment grade and opportunistic.

“Generally, Brookfield seeks to leverage the ecosystem to drive upside for any of their portfolio companies,” said Jaeme Gloyn, an analyst at National Bank of Canada.

However, he said there are elements in the latest deal that will put some limits on the integration of mortgage underwriting and insurance in Canada. For one thing, Stephen Smith, First National’s co-founder and one of its controlling shareholders — who will remain a minority indirect shareholder in First National after the transaction closes — is also an owner of Canada Guaranty Mortgage Insurance Co., the country’s other large mortgage insurer that competes with Genworth/Sagen.

Gloyn also said First National is being purchased by private-equity funds managed by Brookfield Asset Management, while Genworth/Sagen is owned by another unit, Brookfield Business Partners.

“I would not expect concerns regarding competition,” he said.

After the close of the First National transaction, expected in the fourth quarter, Brookfield and Birch Hill will own about 62 per cent of the company. The mortgage lender’s controlling shareholders, Smith and Moray Tawse, will each retain an indirect holding of 19 per cent.

The purchase price of $48 a share represents a 22.8 per cent premium to the volume-weighted average trading price over the 90 days leading up to the purchase announcement.

Private-equity funds managed by Brookfield and Birch Hill emerged as the buyers following a strategic review conducted by First National.

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“Outreach to a broad pool of potential buyers (resulted in) … several acquisition proposals that fell below the Birch Hill and Brookfield offer,” Gloyn said in a note on Monday.

Jason Ellis, First National’s chief executive, is expected to remain in place after the transaction closes, along with his leadership team.

• Email: bshecter@nationalpost.com