In the movie Three Amigos, a trio of bumbling actors beats the odds to defeat a ruthless bandit. UK subprime lender Amigo Holdings laid out an equally audacious survival plan on Monday. The guarantor lender is in a Mexican stand-off with regulators and irked customers that leaves it equally imperilled.
Amigo has not made a new loan since early 2020. The latest twist will end in resolution or administration.
Investors, banking on the latter, wiped two-fifths off shares on Monday morning, leaving the group worth just £17m. That compares with a peak valuation of £1.5bn for Amigo, on which Lex has been persistently bearish.
New management envisages a return to profitable lending. But this sometime bad hat has too many negative marks against its name to stage a decent comeback.
Past loan sales triggered customer complaints. Regulators have ruled that lending standards and affordability checks were insufficient. Amigo’s liabilities have soared, outweighing assets by £118m at the last count. Provisions for complaints stood at £344m in September, over double that of a year earlier.
Amigo can only extricate itself via a scheme of arrangement to limit losses from compensation. A similar proposal that would have capped the liability at £35m was thrown out last year. The judge ruled that shareholders should shoulder more pain. That is unlikely to be the conclusion when the new scheme arrives at court next month.
Amigo proposes injecting £97m into a pot for claimants. Any improvements from a better performing loan book would be added too. So would £15m, courtesy of a rights issue. The financing would dilute existing holders who do not take up their rights by at least 95 per cent. Plans to issue 19 shares for each existing one would raise more than £300m at the current price.
Getting a legal green light will be the easy bit. Without it, insolvency and administration costs would leave claimants with nothing. The hard part will be convincing new investors to buy shares in a business to which all but a few of the old ones have waved adiós.