Amigo Loans – Seeking a cure

All,

Please see our unchanged analysis here.

Today’s market update from Amigo Loans sets the clock running on Amigo’s ability to cure its breach of the bonds’ covenant. Unless management can cure the breach, this should result in the bonds’ involvement in the process going forward.

The Race:

- Grace Period: The covenant breach is subject to a 30 day grace period from today - the day notice was given and therefore ends on the 2nd of September. Kirkland & Ellis have been representing the bondholder ad-hoc committee, however, we do not currently know the size represented by the committee.

- Cure: To cure the breach within this period will likely require the FCA’s agreement to a new SOA proposal, to allow auditors and management to sign and present the going concern language in the annual accounts. For the FCA to agree we expect:

- A newly founded Customer Committee will have to approve the new draft. The first committee meeting has been arranged for today.

- A favourable, if informal response from the High Court to the new proposals.

- The rights issue likely will have to be underwritten, which itself should be contingent upon above approvals.

Options:

- If management succeed in curing the breach, i.e. publish the accounts prior to September 2nd on the back of Customer Committee and High Court agreements as well as an underwritten rights issue (we think), then bondholder upside likely remains capped in the 90s, as per original investment thesis.

- If however, as we think is probable, management need to request a waiver from the bonds towards the end of the period, then bonds could have an option to dictate terms, which should include the ability to provide the lion's share of any fresh equity. This would implicitly solve the FCA’s demand for sufficient financial resources and raise bondholders’ upside beyond par.

Positioning:

- We remain long a 7% NAV position in Amigo bonds at 92.5c/€ with a view to earning 7% in the remainder of the year, split into 4 points upside and carry. Our analysis of different downside scenarios has made us comfortable with the value protection in the bonds of 85c/€ in case a new scheme would seek to compromise the bonds and a similar recovery in case of liquidation, although bonds would likely fall into the 60's for a period if this unlikely event should occur. A 7% position therefore should not present more than a 1% risk to the book.

- As of today, there is still a chance that bondholders will get invited to participate in the rights issue. Even if bonds are trading in the 90s, we would be prepared to equitise a limited portion to boost equity ownership besides fresh cash if that were on offer.

Happy to discuss,

Aengus,

E: amcmahon@sarria.co.uk
T: +44 203 744 7055
www.sarria.co.uk