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Sub-prime lender Amigo Holdings plc announced a formal sale process (FSP) on 27 January 2020. Once a fast-riser on the FTSE 250, the company has since struggled financially following FCA and government investigations into its business and at one point was accused of being a ‘legal loan shark’.
Amigo’s largest shareholder, the Richmond Group Ltd, has initiated the FSP seeking to sell its 60% stake in the company. The Richmond Group is an investment vehicle for James Benamor, Amigo’s founder. Benamor resigned from the company in September 2018 to create a rival company, but recently took back control of the company’s board, with the CEO and chairman resigning over disagreements with Benamor regarding Amigo’s strategy.
Amigo’s value has dropped more than 80% since it was listed on the Main Market in June 2018. The company enjoyed initial success lending to sub-prime borrowers in the short-term with high interest rates (49.9%), provided a friend or relative with good credit guaranteed the loan. However, the FCA and government started to probe the company’s activities because in too many cases guarantors were having to step in to pay the loan.
Following various complaints made to the Financial Ombudsman, rulings have accused Amigo of running poor credit checks and lending money to individuals it should not have. Prior to its IPO, the company ran ‘pilot schemes’ which saw people with extremely poor credit, who would have been illegible for an Amigo loan, receive money. The company had been accused of issuing these ‘pilot loans’ to grow its ‘loan book’ (a record of its lending) to attract public investment for its IPO, something the company denies. Amigo had to remodel its business in response to this regulatory scrutiny, including reducing the number of ‘pilot loans’ following its IPO.
These struggles combined with boardroom politics have significantly reduced the company’s value. Following its IPO in June 2018, Amigo’s market capitalisation on admission was approximately £1.31 billion, immediately qualifying it to enter the FTSE 250. The company’s market capitalisation currently stands at £323.2 million, its share price falling from 300p a share in June 2018 to 50.9p a share at the time of writing.
Amigo is not the only sub-prime lender that has been targeted by regulators. In 2015 the FCA placed a cap on the interest rate that ‘payday’ lenders could charge to no more than 100%. As a result, Wonga, a competitor lender went into administration as it was used to charging eye-watering rates of 5,853% per year (APR).
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Market Tracker is a unique service for corporate lawyers housed within Lexis®PSL Corporate. It features a powerful transaction data analysis tool for accessing, analysing and comparing the specific features of corporate transactions, with a comprehensive and searchable library of deal documentation across 14 different deal types. The Market Tracker product also includes news and analysis of key corporate deals and activity and in-depth analysis of recent trends in corporate transactions.
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