Amigo Loans – Golden pathways
All,
Please find our unchanged analysis here.
We have been waiting to see the next step in Amigo’s rehabilitation since May when the company successfully obtained High court approval for its Scheme of Arrangement. The new lending products unveiled today represent the next milestone along a pathway set out by the Financial Conduct Authority (FCA) to allow the company to resume lending. If Amigo can continue to stay that course, the opportunities for bondholders to participate in the final piece of the puzzle will come soon.
Amigo 2.0 moves closer to lift-off:
- Amigo’s new products announced today will have been discussed with the FCA and the public announcement indicates very strongly that the regulator is onside. There are still regulatory hoops for Amigo to jump through, but the milestones will have been made clear by the regulator. We cannot predict an exact date for a return to lending yet, but the finishing line is very much in sight. The FCA is unlikely to publicly comment until the rest of its conditions for a return to lending are met, and they hold the key.
- The company needs to demonstrate adequate non-financial resources to the FCA. The appointment of Danny Malone as permanent CFO was part of this process. The FCA will also be vetting the adequacy of the new lending process and systems. The discussions between the FCA and Amigo will have clarified what Amigo need to get a pass mark.
- The FCA will restrict lending volumes initially and Amigo’s plan is for initial lending volumes to be a maximum of £35m. A capital raise will be required within 12 months of the return to lending, and this will represent the beginning of Amigo 2.0’s growth phase.
- The investigation into lending practices by the old Amigo is still ongoing. We don’t know how much the FCA will look to extract if Amigo is found culpable. If the likely fine would make Amigo 2.0 unviable, we cannot see why the FCA would have allowed the restructuring proposals to continue.
Positioning:
- We originally had a long position for 7% of NAV at 92.5c/€, our long position was reduced by 78% when the company partially redeemed the bonds, but we retained the rest of the position. Even discounting for distress, our DCF calculation leaves us expecting a return of 40% on this investment.
- Amigo is moving closer to a return to lending which will require the launch of a capital raise, in which we expect to have the opportunity to participate. The FCA will still need to test the lending systems and get comfortable with the management and capital issues before any new lending.
As always, I look forward to discussing this with you.
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055