REG - Amigo Holdings PLC - Scheme of Arrangement Update

Amigo HoldingsAnnouncement

23/03/2023 07:15

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RNS Number : 9902T  Amigo Holdings PLC  23 March 2023

23 March 2023

Amigo Holdings PLC

 

Scheme of Arrangement Update

Amigo Holdings PLC ("Amigo" or "the Company"), a provider of mid-cost credit
in the UK, is issuing an update on its Scheme of Arrangement.

 

Amigo's Scheme of Arrangement (the "Scheme") was sanctioned by the High Court
in May 2022. This contained a Preferred Solution, conditional on the
completion of a 19:1 capital raise by 26 May 2023 followed by the contribution
of a minimum £15m payment to the Scheme fund for creditor redress, and a
Fallback Solution comprising an orderly wind-down of the business. Both
scenarios include a £97m scheme contribution and a mechanism to return excess
cash from the business to Scheme creditors.

 

The Board has always been clear that the Preferred Solution in which Amigo
rebuilds a new, more responsible, mid-cost lending offer would be in the best
interests of not only its shareholders, but also Scheme creditors, employees
and wider stakeholders - including those in society that do not have access to
mainstream credit options. As such, following the announcement issued on 10
March 2023 that the Company had not received sufficient aggregate indications
of interest from potential equity investors to cover the total £45m equity
capital required, the Board has explored whether a potential new scheme, which
eliminates the £15m capital commitment to Scheme creditors, is likely to
succeed.  In seeking to amend the terms of the Scheme, Amigo would be
required to pursue a new replacement scheme.

 

Having taken extensive advice from its professional advisers, the Board has
concluded that successfully executing a new scheme followed by a lower capital
raise is highly unlikely, and the significant associated costs would therefore
cause avoidable detriment to its Scheme creditors in the event the new scheme
and capital raise are unsuccessful. As a result, it is announcing today that
it has taken the very difficult decision to switch the Scheme from the
Preferred to the Fallback Solution.

 

In reaching this decision, the Board has considered a number of factors
including the ability to implement a new scheme which secures creditor
approval, is not objected to by the Financial Conduct Authority ("FCA") and
receives High Court sanction, all within the required timetable. It has also
considered the additional costs of implementing a new scheme and the
confidence that the capital, albeit a lower quantum, can be raised against the
challenging ongoing market backdrop and sentiment around the sector in which
Amigo operates. As part of that, it has also taken into account that the
indications of interest for £11m of equity and £10m of exchangeable notes
received to date remain indications only and not firm commitments.

Since October 2022, Amigo's financial advisers and management team have spoken
to approximately 200 potential investors in the process to raise capital. This
has been undertaken against an increasingly challenging economic backdrop in
the UK which has, in turn, negatively impacted capital markets and the outlook
for consumer credit.  The main concerns investors have cited include: current
affordability challenges for UK households, particularly in our sector of the
market; the history of regulatory intervention in the non-standard credit
market and the proposed implementation of a consumer duty of care; the ability
to write the loan volumes in the business plan given the market backdrop; and
the impact of having to make a significant upfront payment to Scheme creditors
as part of the capital raise.

Conversion rates under our RewardRate pilot lending scheme have improved as we
have progressed through the pilot, and, as noted previously, changes made to
our affordability assessment processes at the beginning of the year have in
turn improved loan conversion. However, the business model is not yet proven
and, although there is strong potential demand, current affordability
challenges for UK households means most customer applications have to be
rejected.

The Fallback Solution requires that the trading subsidiary, Amigo Loans Ltd
("ALL") stops lending with immediate effect and is placed into an orderly
wind-down, with the result that all surplus assets after the wind-down are
transferred to the Scheme creditors. In due course, ALL will be liquidated. No
value will be attributed to the ordinary shares of the Company in the Fallback
Solution.

The wind-down of the business, during which the existing loan book will
continue to be collected, will last for approximately 12 months and, as such,
will require a number of existing roles through the period. Colleagues will be
consulted over the coming days and the Board would like to reassure its
employees that they will continue to be paid and contractual notice periods
will be honoured. The Board would also like to confirm to our suppliers that
any services used will be paid for in accordance with contractual terms.

The Scheme claims process is unaffected. However, as noted previously, there
will be an impact to the total compensation Scheme creditors will receive in
terms of pence in the pound as they will not receive a share of the minimum
£15m Scheme contribution that was to be raised from investors, and the
turnover provision from the new business scheme will be replaced by the
residual surplus under the Fallback Solution, which will result in a smaller
pool of distributable funds.

 

Danny Malone, Chief Executive Officer, said: "This is a very sad day for all
our employees who have worked extremely hard to address historic lending
issues and rebuild a new Amigo, and for our shareholders and wider
stakeholders who have supported us. It's also a sad day for creditors due
redress who will now receive a lower level of cash compensation than they
would had the New Business Conditions been satisfied. I would like to thank
colleagues, in particular, for the considerable commitment they have shown
over a long period of time. We are very sorry to be delivering this news
today.

The current Board came into Amigo to save the Company because we believe
passionately that there is a need in the market for a regulated mid-cost
lender that meets the demand of financially excluded people who deserve access
to regulated credit. We have fought hard to deliver the best outcome for
creditors, colleagues and shareholders and have left no stone unturned.

From the beginning, we have faced significant challenges in seeking a solution
in the best interests of all our stakeholders and have had to make a series of
difficult decisions. A successful scheme which provided a fair financial offer
to Scheme creditors was always the only way shareholders could retain any
value for their shares.  Clearly the economic and market environment has
moved against us considerably since our Scheme, formulated in late 2021 /
early 2022, was sanctioned last May. This has severely impacted both our
ability to raise capital and the affordability of loans for our potential
customers, coupled with tighter lending controls. Whilst removing the £15m
upfront payment to the Scheme would take away one barrier and reduce the
capital required, there are multiple considerations and risks, as highlighted
in today's announcement, which have led us to conclude that successfully
executing a completely new scheme followed by a lower capital raise would
remain highly unlikely.

We appreciate this is extremely difficult news for our employees and our
shareholders but, after full and careful consideration of all further options
available to us, we do not believe there is another viable route forward.

Our priority is to now undertake an orderly wind-down of both the Amigo Loans
Ltd business and the wider group over the next 12 months or so in which we
maximise returns for Scheme creditors and look after our people as we move
through the process."

 

Board Changes

In light of the transition of Amigo into the Fallback Solution, the Board has
concluded that it is appropriate for the Company to reduce the size of the
Board. More details will be provided in due course.

Shareholders

Amigo will be hosting a call for shareholders tomorrow at 12.00pm (UK time).
Dial in details are as follows:

Join Zoom Meeting
https://us02web.zoom.us/j/84471110525?pwd=UDRHM3lSVE5tRmpkOUVsWmMxaHBGUT09
(https://us02web.zoom.us/j/84471110525?pwd=UDRHM3lSVE5tRmpkOUVsWmMxaHBGUT09)

Meeting ID: 844 7111 0525

Passcode: 028390

        +44 203 901 7895 United Kingdom

        +44 208 080 6591 United Kingdom

 

This announcement contains inside information for the purposes of Article 7 of
the Market Abuse Regulation (EU) 596/2014. The person responsible for this
announcement is Roger Bennett, Company Secretary.

ENDS

Enquiries

 Company
 Amigo Holdings PLC         investors@amigo.me
 Kate Patrick               Investor Relations Director
 Roger Bennett              Company Secretary

 Media enquiries            Amigoloans@lansons.com
 Tony Langham               07979 692287
 Ed Hooper                  07783 387713

 Peel Hunt LLP              020 7418 8900
 James Britton
 Oliver Jackson

 

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