Amigo Loans (AMGO) wasn’t the first provider of guarantor loans to be listed on the London markets when its shares began unconditional trading on 4 July. However, unlike sub-prime lenders such as Provident Financial (PFG) and Non-Standard Finance (NSF), Amigo falls outside the Financial Conduct Authority’s (FCA) definition of ‘high-cost credit’ – defined as charging 100 per cent or more APR – the target of recently proposed regulatory restrictions. With the FCA encouraging those that can to switch to mid-cost alternatives, Amigo – which provides loans at a 49.9 per cent APR – is hoping to benefit.
The shares were priced at 275p via an institutional offer, giving the lender a market capitalisation of just over £1.3bn. That had risen to £1.48bn on the morning the shares began unconditional trading. The offer raised £318m in aggregate proceeds for selling shareholders: founder James Benamor, chief executive Glen Crawford and chairman Stephan Wilcke, as well as a minority owned by other directors and senior managers. Mr Benamor will remain the majority shareholder via his limited company Richmond, retaining a 63.5 per cent stake in Amigo. They’re subject to a 180-day lock-up period. Serial sub-prime credit investor Woodford Investment Management bought 4.2 per cent of the share capital upon admission, while Mr Woodford’s former employer Invesco Perpetual purchased a 6.8 per cent stake.
Amigo provides loans – which are backed by a second party with a lower-risk credit rating – predominately to people with impaired borrowing histories, but also to those that have a sparse (or non-existent) credit record, such as newly arrived individuals to the UK. Amigo puts its share of the guarantor loan market at 88 per cent at the end of December, with Non-Standard Finance’s TrustTwo and George Banco businesses – which have an aggregate 10 per cent of the market – its closest rivals.
The average loan size on its books at the end of March was just under £4,000, with a term of 39 months. In terms of affordability testing, borrowers must have enough funds to meet their monthly expenditure requirements, in addition to their Amigo Loan repayments, as well as a £100 cash buffer, with the last proviso increasing to £150 for guarantors. Loans are typically used to finance car purchases, business start-up costs or for debt consolidation, although why anyone would want to 'consolidate' their liabilities at that rate is open to question. Nevertheless, the loan book has been growing fast, more than doubling during the two years to March to £668m, with customer numbers rising by almost the same rate to reach 182,000.
However, impairments have also been increasing as a proportion of revenue, rising to 21.3 per cent at the end of March, up from 9.5 per cent and 6.8 per cent during 2016 and 2017, respectively. That’s also in advance of the 17 per cent impairment rate recorded by TrustTwo and George Banco last year, although the increase was partly due to the growth spurt in the loan book, which typically entails higher volatility in repayments during the early stages of the loan term.
As well as raising its public profile, the lender hopes that by listing on the main market it will gain access to a greater range of funding sources (ironically at cheaper rates), which could include access to the securitisation market. At present, the loan book is funded via the cash collected from borrowers (or guarantors), around £400m raised via three high-yield bond issuances, and a £160m super senior revolving credit facility.
