Around £300m of fresh debt and equity finance would be required to relaunch guarantor lending and promote new Amigo products. There is no anchor equity investor but there are a number of expressions of interest, said the management team on the call. Despite “very frequent and constructive discussions with the FCA” on the new propositions – “no commitment has been given [by the FCA] either way,” they cautioned. FCA investigations on past lending practices are making very slow progress and after presenting a huge number of documents to the regulator – “it is in their hands”. Management admitted that it “would be very difficult to do an equity raise if this uncertainty persists,” adding that the FCA is aware of this.

Scheme Two

Earlier today, as reported, Amigo said that based on the preferences of the Independent Complaints Committee it plans to apply for two schemes. Firstly, a New business Scheme contingent on an equity raise and resumption of new lending, and secondly, a managed wind down scheme. If the judge fails to sanction the first Scheme, he/she will be asked to sanction the second option during the same hearing. Without a Scheme, the company says it will face administration or another insolvency process. 

In May, Amigo Loans Scheme of Arrangement failed at the Sanction stage after being opposed by the FCA. Amigo had contributed £50m in an SPV to deal with redress claims, but there were no smiles from Justice Miles. As reported, the judge was sceptical on the binary option presented by the UK-based guarantor lender, which said that it would be forced to file for insolvency if the Scheme which sought to impose 90% haircuts on redress claims was rejected. 

To address the concerns raised by Justice Miles, Amigo says the proposed Scheme contribution will be significantly higher than the £50m previously offered. Amigo is able to do so due to improved underlying collections as Covid-19 uncertainty lifts and better timing of balance adjustments. A small proportion of the equity raise would be contributed to the scheme, noted management. 

In total five scheme options were presented to the ICC, said management. They cautioned that there will be a material dilution which will lead to existing shareholders owning a much smaller proportion of the group. It was clear from the previous judgment that there needed to be a balance between shareholder and creditor outcomes, they explained. 

The FCA has appointed an independent financial advisor to help it assess the scheme. Bondholders will not be a voting class under the Scheme, but management said they would “engage with them” and that there would be a fairness opinion relating to the bonds. 

Partial repayment of the bonds considered

In their release, Amigo said that the improved collections would enable the board to consider early part redemption of the bonds to deliver “interest savings,” which supports increased payments to creditors under the Scheme. The cash position of £325m at the end September slightly exceeds the bond balance. The call on the bond steps down to par 15 January.

Management said that they have more bond debt than they need in the short term, for when lending resumes. But added that no firm decision had been made. They would look at and manage cash forecasts to look at payments to be made into the scheme, they added. 

Amigo’s 7.625% January 2024 SSN are quoted up a point today at 96.50-bid. There are £324m outstanding. 

Under questioning, management said all options on the table for the debt component of the £300m of new funding, which could include new SSNs, securitised debt and/or an RCF. 

Amigo wants to make friends with the FCA

As reported, one of the key considerations for the future financial health of Amigo is the launch of new products. The lack of new lending and collections mean that the existing loan book has more than halved in the past year. Impairments have picked significantly as Covid loan repayment plans have rolled off, with uncertainty on future collections, said management.

In today’s release, there appeared to be a change of tack. Previously, Amigo had said that it would stop guarantor lending, putting its hopes in a new Amigo 2.0 product that would be rebranded under a new name. However, today it said that the new proposition would include guarantor lending under the Amigo brand, with the new brand also offering guarantor lending plus non-guarantor products. 

With the FCA saying that it will not approve resumption of lending and new Amigo products until after the scheme succeeds, and only if the company can raise a significant amount of debt and equity, “material uncertainties remain,” admitted management on today’s call. 

To ensure survival, it needs an approved Scheme, a successful resolution of the FCA investigations, FCA approval of its new products, and securing significant investment in the new products, they outlined.