Amigo Loans Memo 290620
- Understand how we estimate Amigo’s total customer redress / conduct costs across Amigo’s FOS customer complaints / FCA VReq, Amigo-specific FCA Investigation and FCA multi-firm review of the guarantor loan sector at c. £206m
- Understand how we estimate Amigo’s loan losses on Q3 20 Stage 1 gross customer loans at 33%
- Understand how Amigo’s Securitization Facility works and the strong loan putback and acceleration rights this benefits from, making the £ 7.625 1/2024 Senior Secured Notes (SSNs) heavily subordinated here (unless Amigo files imminently for administration)
- Understand how, from our estimated run-off cash flows, we arrive at a base case recovery on Amigo’s SSNs of 37 cents with a liability management exercise potentially improving this to 44 cents
- Understand plays that SSNs holders may be able to pursue to seniorise their position vs customer redress claims and potentially against the putback rights of the Securitisation Facility
- Understand why there may be value in Amigo’s SSNs should they drop below 30 cents
- Understand why none of Non-Standard Finance, Provident Financial or New Day is likely to acquire Amigo in the near term
- Understand Richmond Group / Mr Bennamor’s likely current thinking on Amigo / the UK guarantor loans market and what possible plays he may make after selling down his stake in Amigo to zero
- Understand why we believe it will ultimately be Amigo’s top-up / repeat lending that brings about its demise, both in terms of potential FCA actions beyond the current FOS backlog / FCA Vreq and in terms of latent asset quality problems
- Understand why Amigo’s historic financials, whether seen as a corporate or bank, including “steady state” FCF assuming a constant loan book, were flawed as an indicator of the strength of the business
- Comparison of Amigo vs Non-Standard Finance (UK’s # 1 and #2 guarantor lenders respectively)
- Estimated total customer redress / conduct costs
- Estimated lifetime loan losses on Amigo’s loan book as part of run-off cash flow modelling
- Securitisation Facility analysis
- Loan loss analysis for Amigo during after the global financial crisis
- What does Amigo’s COVID-19 forbearance and funding position disclosure post Q3 20 imply for its current level of arrears loans?
- How instrumental has repeat lending been in masking unaffordable loans (from the borrower / guarantor perspective) and in inflating Amigo’s historic profitability and (steady state) FCF?
- What can we learn from the Brighthouse and Wonga cases in terms of customer redress cost potential at Amigo?
- What should SSNs holders do to try and protect their position vs customer redress claims and putback rights of the Securitisation Facility?
- How severe could loan losses end up for Amigo, given its COVID-19 forbearance programme (and FCA forbearance requirements now extending to Oct-20), weak macro, lack of repeat lending currently that might otherwise mask asset quality problems, deliberate non-payment by borrowers and guarantors and lower liquidity in UK the guarantor loans market (which would otherwise enable some borrower refinancing) with Non-Standard Finance currently in breach of its own Securitisation Facility covenants?
- View, Variant Perception & Recommendations
- Estimating Customer Redress Costs
- Amigo’s Run-Off Cash Flows
- Steady State FCF & Amigo’s Financials As A “Bank”
- Amigo As A Takeover Target
- Group Structure, Indenture & Securitization Facility
- Business Overview & Analysis
- Historic Financials
Appendix 1 – Non-Standard Finance Plc – Overview