Amigo Loan’s stock crashes as it unveils new bailout

Subprime lender Amigo shares continue to crash as shareholders face dilution under new bailout

  • Amigo plans a capital increase that would dilute shareholder interests
  • It’s also working on a new, more generous customer compensation plan
  • It reiterated that unless the new rescue plan is accepted, it will fail

Amigo Loans shares crashed further today after the subprime lender announced a capital increase as part of its new bailout that would severely dilute shareholder interests.

The beleaguered company also said it was working on a new compensation plan for customers who had missold loans they couldn’t repay after the earlier offer was rejected by London’s High Court.

Amigo reiterated that the company will go bankrupt unless the new compensation plan and capital increase are approved by regulators.

Always on the brink: Amigo said it would go bankrupt unless the new plan is approved

“The ratification of a new regulation is becoming increasingly urgent,” the company said.

“Without an approved settlement, Amigo expects to file for administration or other bankruptcy.”

It had said the same thing in May this year, when a judge refused to approve its cost-cutting compensation plan for borrowers, who would have received only 5 percent of what they owed for loans misselling.

The Financial Conduct Authority said the plan would primarily benefit shareholders, and that it believed “a fairer plan” was possible – despite Amigo saying the plan’s failure would likely put it in administration.

Now the company said it was looking for a new compensation scheme that, while not expected to fully reimburse the claims, would be more generous.

“We are pleased that the new business plan, subject to a relaunch of new loans and a successful capital increase, will provide a significantly better cash contribution compared to the original plan developed a year ago,” said Gary Jennison, CEO of Amigo.

Meanwhile, it is also considering launching a share raise, which Amigo said would lead to a “material dilution” of existing shareholder interests in the company.

“The potential for material dilution for shareholders is a difficult but necessary consequence of our situation,” Jennison said.

“We have noted on many occasions that we are an insolvent company, so there are no easy roads if we want to avoid administration and the only other options are controlled resolution or insolvency, both of which are worse outcomes for shareholders and customers.”

He added: “We really hope that as many existing shareholders as possible will invest in what we believe to be a great new credit proposal, which aims to meet the growing and pressing need in the market for a mid-sized product that helps customers to by growing towards mainstream financial inclusion.’

Shares in Amigo fell 25 percent to 8.04p in morning trading.

Amigo, which lends to people with bad credit scores if they have a friend or family member willing to repay if they can’t, has been plagued by complaints after rule changes led thousands of customers to mis-sell their loans.

It has argued over a customer compensation scheme with the Financial Conduct Authority after it realized it could not afford the millions of pounds in compensation.

Amigo has halted all new borrowing until it smoothed out a recovery plan, which saw revenues fall nearly 40 per cent to £56.5 million in the six months to the end of September.

During that period, it set aside about £344 million to compensate customers who have been given mis-sold loans.

The number of customers fell by 42 percent to 102 million, while the net loan portfolio fell by 54 percent.