Amigo – Reviewing the options.
All,
Please find our unchanged analysis here.
Now that the 79% redemption of the SSNs is complete and the cash paid to bondholders, we are a little perplexed that the bonds are quoted as high as 99p/£. We believe there is a viable ongoing business, and we see the remaining bonds as offering a call option on the equity of Amigo 2.0. However, insolvency is still a tangible possibility.
Amigo 2.0:
- We see potential in the Amigo business if it re-emerges under a 2.0 plan. In particular, remaining bondholders should be well placed to provide the required capital and secure for themselves a large share of the equity going forward, safe for what will have to be reserved to customer claimants.
Administration:
- If the court rejects the SoA or the FCA refuses to allow Amigo to resume lending, then the company will have to file for administration.
- With £50m of SSNs outstanding and unrestricted cash of £100m, the SSNs have 2x cash coverage and are highly likely to be money good, even after covering insolvency costs.
- Nevertheless, the timing of pay-outs would be uncertain, and we would expect bonds to drop off.
Positioning:
- We remain positioned in the Amigo SSNs with what has shrunk to just 1% of NAV with a view to participating in the capitalisation of Amigo 2.0 if it comes to pass.
- Holding Amigo at par here is akin to holding an option attached to a cash pool. The latter however has some risk. We estimate the remaining loan book to be approx. £100m and a sale of a book this small will be a struggle. Further, once Amigo files for administration, collections will likely run slow, as customers will inevitably decline to pay.
As always, we look forward to exchanging ideas on this name with you all.
Regards,
Aengus
E: amcmahon@sarria.co.uk
T: +44 203 744 7055