Amigo. Q2 21 Liquidity Shortfall From Securitization Loan Put-Backs? If Averted, Can Survive FCA VReq & COVID-19 Loan Losses. But FCA Investigation The Potential Knock-Out. No Easy Path To “Strand” Redress Costs Via Administration.
- Understand how Amigo’s Q1 21 unrestricted cash position of > £135m may be temporarily inflated by a pause on loan put-backs from its Securitisation Facility to the ALGL “Rest of Group” Restricted Group
- Understand the extent of mass loan put-back ALGL Rest of Group may face if the Securitisation Facility cannot be renegotiated when the waiver period expires and how liquidity could then break as early as Q2 21 (i.e. next 2 months)
- Understand how Senior Secured Notes (SSNs) recovery changes vs our base case with an early administration if liquidity breaks in Q2 21 or even FY 22 due to potential FCA Investigation-imposed customer remediation costs
- Understand why it will likely be difficult for SSNs holders to force an administration should they want to, let alone to achieve any “ring-fencing” of the SSNs collateral pool vis-a-vis customer redress / remediation claims and Securitisation loan put-back claims
- Understand the critical role in SSNs recovery determination of Amigo’s holding of Securitisation junior notes given the cash trapping within the Securitisation we expect post the waiver period
- Understand our updated estimate of Amigo’s total customer redress / remediation 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. £306m
- Understand why we have reduced our lifetime loan loss rate assumption on Amigo’s FY 20 Stage 1 gross current loans to 27% (from 33% previously)
- Understand how SSNs holders with experience of purchasing loans from financial services firms could attempt a transaction to acquire ALGL’s Stage 1 current loans
- Understand the range of scenarios we view as plausible and the probabilities we assign to them
- Understand how we estimate Amigo’s loans (Stage 1, Stage 2, Stage 3 and different arrears groups) are distributed between ALGL Rest of Group and the Securitisation
- 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
- Understand how, from our estimated run-off cash flows, we arrive at a base case recovery on Amigo’s SSNs of 34 cents
- Understand why there may be value in Amigo’s SSNs should they drop below 35 cents
- 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
- Run-off cash flow modelling of ALGL Rest of Group, AMGO Securitisation and ALGL Consolidated, including for ALGL Rest of Group and the Securitisation the loan put-backs and ineligibility now confirmed of certain loans
- Estimated SSNs recoveries in early administration scenarios including different assumptions on timing relative to Securitisation loan put-backs honoured
- Estimated distribution of Amigo’s loans (Stage 1, Stage 2, Stage 3 and different arrears groups) between ALGL Rest of Group and the Securitisation and the crucial role this plays in SSNs recovery determination
- Updated estimated total customer redress / remediation costs including FOS fees and statutory interest
- Securitisation Facility analysis
- SSNs recovery sensitivities
- What does Amigo’s unrestricted cash balance of > £135m at Q1 21 imply for the magnitude of potential Securitisation loan put-backs facing it if the Securitisation waiver period expires without renegotiation of the facility?
- Why are we somewhat more optimistic on Amigo’s lifetime loan loss rate than previously?
- What does a path back to c. par look like?
- Why are various strategies for SSNs holders to protect their positions vs the Securitisation and vs customer redress / remediation claims difficult to envisage in practice?
Table of Contents
- View, Variant Perception & Recommendations
- Amigo’s Securitization Facility. Loan Put-Backs & Cash Trapping
- Run-Off Cash Flows. ALGL Rest Of Group (Ex. Securitisation) & AMGO Funding (No. 1) Ltd (Securitisation)
- Redress Costs. VReq Complaints Costs Likely Manageable. FCA Investigation Potentially A Knock-Out Blow
- No Easy Path To “Strand” Redress Costs Via Administration
- Q4 / FY 20 Results Analysis
- Appendix 1 – Steady State FCF & Amigo’s Financials As A “Bank”
- Appendix 2 – Group Structure, Indenture & Securitization Facility
- Appendix 3 – Business Overview & Analysis
- Appendix 4 – Historic Financials
- Non-Standard Finance
- Richmond Group