Uncertain times ahead for sub-prime lender as firm assesses funding options

Nottingham-based sub-prime lender Morses Club has released a gloomy set of figures this morning – as it battles against a series of known unknowns.

The embattled firm says it still doesn’t know the full financial impact of its decision to suspend processing claims made against its “unaffordable” loans while it pursues the potential use of a Scheme of Arrangement – but that in the year ending February 26 it has received a “significant” complaints liability of £42.6m.

Morses Club bosses said that without the pause in new loan activity, the viability of the business would have been up for question.

A turbulent year has pushed Morses Club deep into the red, with the company making a statutory loss of £42.9m over the 12 month period.

Meanwhile, the company says it is working with funders, who “remain supportive”, to secure further funding in line with the future product set of the business. The Group’s current facility of £35m is only in place until 31 March 2023, which is less than 12 months following the date of signing of the financial statements.

A statement from Morses Club this morning (August 25) said: “Discussions continue with lenders regarding the covenants within the facility, the extension or deferral of the term-out clause which would be enacted by the end of September 2022 and would place restrictions on the ability of the group to issue new loans and the facility’s possible extension.

“This term-out clause is pre-existing and essentially provides assurance to the funders of the repayment of the facility within the last 6 months of the agreed term. In practice, this has the effect of converting the rolling credit facility to a term loan. This would mean that any subsequent collections made on the loan book, would be ringfenced to pay down the facility, less any operational costs the business has. Therefore, it would place restrictions on the business with regard to the issue of new loans.”

Gary Marshall, chief executive officer of Morses Club, remains upbeat. He said: “The last 12 months have been challenging for the company and we fully recognise the current challenges we as a group still face. However, we are deeply committed to the sector and the customers who require our services more than ever due to the current macroeconomic environment.

“The overall long-term outlook for the Group is positive. We have made significant strides to reshape the Group and there will be more to do as we continue our discussions with the Financial Conduct Authority to progress on a potential Scheme of Arrangement. Any potential Scheme of Arrangement would remove the uncertainty of continued redress claims and remove the risk of ongoing liabilities with regard to volatility in the level of complaints.

“I am confident that we can work through this in a constructive way, as it is vital that our customer demographic continues to be served by a provider which understands the market and operates in a socially conscious way.”