13 October 2022 

Amigo Holdings PLC

FCA approves return to lending

Amigo Holdings PLC ("Amigo" or "the Company"), a provider of mid-cost credit in the UK, is pleased to announce that it has received approval from the Financial Conduct Authority ("FCA") to return to lending, under certain agreed conditions, with immediate effect.

Amigo suspended lending activity to all but key workers in March 2020, at the onset of the COVID-19 pandemic, ceasing lending altogether in November 2020. The Company subsequently received a significant number of customer claims for compensation related to past lending standards. In May 2022, Amigo received High Court approval for a New Business Scheme of Arrangement (the "Scheme") to facilitate the payment of compensation to creditors, conditional on regulatory approval for a return to lending and the completion of a capital raise. If these conditions are not satisfied by 26 May 2023, Amigo will go into run-off and will be wound down.

In a letter to the Company from the FCA, dated 13 October 2022, the FCA has confirmed that it is satisfied that Amigo has met the threshold conditions required for Amigo to return to lending, initially through the operation of a pilot lending scheme, which would limit the level of new loans issued for at least two months. The substantive contents of the letter are reproduced below.

We refer to our recent correspondence regarding the Firm's intention to return to lending. This letter sets out our current position on the Firm returning to lending via a lending pilot.

In November 2020 the Firm paused new lending and announced its intention to enter into a Scheme of Arrangement, to provide the Firm with certainty to the total liability arising from large numbers of customer complaints. Since this point, the FCA has assessed the Firm's proposed Scheme of Arrangement's compatibility with FCA objectives and has been assessing the Firm's proposed approach to future lending, including whether the Firm is satisfying and can continue to satisfy the Threshold Conditions.

Our letters of 28 January 2022 and 4 March 2022, and subsequent correspondence with the Firm, set out our expectations of the Firm and the conditions it was required to meet (as per our 4 March 2022 letter) in order for us to be satisfied it was in a position to resume lending. Those conditions are that:

(i) the New Business Scheme is sanctioned by the court;

(ii) the FCA is satisfied that the Firm meets FCA threshold conditions;

(iii) outcomes testing of the Firm's new lending system is completed to the satisfaction of the FCA; and

(iv) dealing with, to the FCA's satisfaction, any other issues that may arise.

Alongside those conditions, we set out our expectation that a return to lending would be limited in volume until the Firm demonstrates to the FCA (with third party assurance where appropriate) that it is lending in a way that meets FCA's expectations.

On 12 May 2022 the Firm's redress creditors voted for the Firm's proposed "New Business Scheme" and the court approved this scheme on 23 May 2022 evidencing that the first condition is met.

The FCA recognises the significant programme of change the Firm has undertaken and continues to progress to deliver improvements to the way in which its business operates including providing fair outcomes to consumers.

Having completed an assessment of the Firm's proposed return to lending, based on the information provided to date, the FCA is satisfied that the Firm has demonstrated it is meeting Threshold Conditions, and that it is appropriate for the Firm to resume lending on a pilot basis, with immediate effect. The duration of the lending pilot will be for a period of two months, at limited lending volumes (to volumes previously agreed with the Firm).

The lending pilot will enable the Firm to test its proposed return to lending policies and procedures in a controlled environment, in which the Firm is expected to undertake the agreed robust outcomes testing to demonstrate that its new systems and controls meet applicable FCA regulatory expectations in practice, and that the Firm can continue to meet the Threshold Conditions, should lending volumes be increased post pilot.

During the lending pilot period, we expect the Firm to keep the FCA appraised, in a timely manner, of all of the agreed relevant matters relating to the pilot, which includes material developments such as modifications or changes the Firm proposes to make to its approach as a result of its outcomes testing. The FCA expects the Firm to inform it of any additional relevant matters relating to the pilot that may arise.

The FCA recognises that a full return to lending is central to the New Business Scheme. Following the end of the pilot lending phase, the FCA will consider the impact on consumers of the Firm returning to lending on a wider scale, and whether the results of the outcomes testing demonstrate that the Firm is able to continue to meet FCA expectations, therefore satisfying the second and third conditions.

The FCA reminds the Firm of its responsibility to act in accordance with our Principles, Rules and Guidance. We maintain our position that, subject to the Firm meeting the conditions set out, we expect a full return to lending to take place no later than nine months after the New Business Scheme Effective Date.

The FCA's decision as to the Firm's ability to return to lending is based on the information the FCA is aware of at present. The FCA continues to reserve its position should facts or circumstances change, or new facts emerge. This could include taking action to impose a requirement on the Firm's regulatory permissions which restricts it from continuing its business, for example, should it be identified the Firm's proposed approach to lending does not provide fair consumer outcomes.

A full copy of the FCA's letter will be published by the FCA on its FCA website.

The Company is pleased to have met the FCA's threshold conditions. Under the terms of the FCA's notice, Amigo will undertake further customer outcomes' testing, led by a third party, during the initial two month pilot lending phase and a required period for assessment. If the FCA is satisfied with the outcome of this pilot phase, Amigo will still be limited to a maximum of £35m cumulative net originations until a further minimum £15m Scheme contribution from the proposed capital raise is paid into the Scheme fund, by no later than 26 May 2023.  

As previously announced, under its new RewardRate brand, Amigo will offer a revised guarantor loan product, starting at 39.9% APR, and a non-guarantor unsecured loan, starting at 49.9% APR, both of which have been specifically designed for its target market. Amigo's target customer base includes customers who: (i) have robust underlying credit profiles but have been underserved by current market participants due to having limited credit history as a result of their age or recent arrival in the UK; or (ii) have a low credit rating due to the impact of a life event or historic credit impairments. Both products will feature an annual, interest-free, payment holiday and the opportunity to reduce the effective APR down to 34.9%, being a 5% and 15% reduction, respectively, over the term of the loan, dependent on the product. These innovative features reward customers for on-time payments, encouraging better financial management and facilitating a long-term improvement of customers' credit scores and financial mobility.

Volumes of guarantor loans are expected to be higher initially with the non-guarantor unsecured loan becoming the larger product in the medium term. If the pilot phase is successful, subsequent originations are expected to reach approximately £200m a year in year two and grow to over £350m in year four. The targeted blended net loan book yield is expected to increase to 38% as the proportion of non-guarantor unsecured loans rises. Amigo's business model assumes an impairment to revenue ratio in the low 30% range and a cost to income ratio (before finance costs) in the low 20% range in the medium term.

Capital Raise Plans

The FCA's decision to approve a return to lending is an important milestone for creditors owed redress by Amigo, as it meets one of two Scheme conditions which must be fulfilled. The second condition is the completion of a capital raise by 26 May 2023, followed by the contribution of a minimum of £15m payment to the Scheme fund for creditor redress.

As set out in the Company's AGM statement on 28 September 2022, the Board expects to propose a capital raise of approximately £40m, which will include the 19:1 ordinary share issue mandated by the Scheme. In addition, Amigo will raise debt to support future growth. The Company will seek to facilitate meaningful participation by its existing shareholders on a pre-emptive basis, underwritten by one or more institutional investors whom it expects to account for the majority of the capital raise. The capital raise process has progressed to formal marketing to potential new investors.  

Amigo continues to provide information to the FCA with regard to its investigation. The Company has responded to a number of information requests and is hopeful that the investigation will be concluded prior to the completion of the capital raise.

Commenting, Danny Malone, Chief Executive, said:

"We return to lending with FCA approval as a changed company in terms of our values and the way we operate with a focus on supporting financial inclusion and mobility for customers. Our new RewardRate product set has been designed with this in mind and once the trial phase is complete, we believe it will be an important new entrant to the mid-cost regulated market.

"A successful pilot will also move us a step closer to paying out compensation to redress creditors under the terms of the Court sanctioned Scheme of Arrangement. Together with our advisers we are working hard on meeting the final condition, namely a successful capital raise by May 2023."

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.

Enquiries

About Amigo Loans

Amigo is a public limited company registered in England and Wales with registered number 10024479. The Amigo Shares are listed on the Official List of the London Stock Exchange. Amigo has provided guarantor loans in the UK since 2005, offering access to mid‐cost credit to those who are unable to borrow from traditional lenders due to their credit histories. The guarantor loan concept introduces a second individual to the lending relationship, typically a family member or friend with a stronger credit profile than the borrower. This individual acts as guarantor, undertaking to make loan payments if the borrower does not. Amigo was founded in 2005 and grew to become the UK's largest provider of guarantor loans. From October 2022, Amigo will offer guarantor loans and non-guarantor personal loans under its RewardRate brand. Both products will reward customers for on-time payments with an annual, interest-free, payment holiday and the opportunity to reduce the effective APR, encouraging better financial management and facilitating a long-term improvement of customers' credit scores and financial mobility.  Amigo Loans Ltd and Amigo Management Services Ltd are authorised and regulated in the UK by the Financial Conduct Authority.

Forward looking statements

This announcement contains certain forward-looking statements. These include statements regarding Amigo Holdings PLC's intentions, beliefs or current expectations and those of our officers, Directors and employees concerning, amongst other things, our financial condition, results of operations, liquidity, prospects, growth, strategies, and the business we operate. These statements and forecasts involve risk, uncertainty and assumptions because they relate to events and depend upon circumstances that will or may occur in the future. There are a number of factors that could cause actual results or developments to differ materially from those expressed or implied by these forward-looking statements. These forward-looking statements are made only as at the date of this announcement. Nothing in this announcement should be construed as a profit forecast. Except as required by law, Amigo Holdings PLC has no obligation to update the forward-looking statements or to correct any inaccuracies therein.

Additional Information

This announcement is not intended to, and does not, constitute or form part of any offer, invitation, or the solicitation of an offer to purchase, otherwise acquire, subscribe for, sell, or otherwise dispose of, any securities, or the solicitation of any vote or approval in any jurisdiction, pursuant to this announcement or otherwise.

This announcement constitutes notice by Amigo Luxembourg S.A. (the "Issuer") to the holders of the Issuer's 7.625% Senior Secured Notes due 2024 (for the notes issued pursuant to Rule 144A of the United States Securities Act of 1933, ISIN: XS1533928468 and Common Code: 153392846; for the notes issued pursuant to Regulation S of the United States Securities Act of 1933, ISIN: XS1533928625 and Common Code: 153392862) (the "Notes") issued pursuant to pursuant to Section 4.03(a)(3) of an indenture dated January 20, 2017 among, inter alia, the Issuer, the guarantors named therein and U.S. Bank Trustees Limited, as trustee and security agent. Amigo Holdings PLC is the indirect parent company of the Issuer. This announcement shall constitute a "Report" to holders of the Notes.