“Substantial capital raise” needed for lender to avoid covenant breaches

Non-Standard Finance has warned it needs to “strengthen” its balance sheet in its latest trading update.

The Leeds based company which in October reported a drop in profits in the first half of the year stated that it had continued to be impacted by the ongoing pandemic.

Despite loan volumes picking up in August, September and October the firm stated that the subsequent tiered lockdowns, which were “particularly severe” in its customer heartland resulted in reduced lending volumes in the last two months of the calendar year.

The business noted that while it had continued to operate within its financial covenants, it needed to strengthen its balance sheet to avoid future covenant breaches, address material uncertainties regarding going concern and support future growth by raising “substantial capital”.

Work has already started on this process with it expected to complete in the second quarter of 2021.

The business has experienced a trying couple of years, with a previous fundraise suspended in August owing to a Financial Conduct Authority (FCA) investigation. While in 2019 it failed in its £1.3bn bid to take over Provident Financial.

Following the FCA review into its guarantor loans division the business made a £16m provision for redress in it is 2020 half year results and has seen minimal lending volumes through the remainder of 2020.

The firm’s latest update also highlighted that although the ongoing pandemic had caused an increase in impairment the business had seen that loans written since the start of the crisis have “performed better than our historical average”.

It also highlighted that its Loans at Home offer had seen a “significant uplift” over the second half of 2020 but that lending volume was down 33% compared with 2019 which it cited as a result of the tiered lockdown and closure of retail.

Overall the groups combined net loan book declined by c.27% against the previous year. Despite this and subject to the “substantial capital raise” the firm believes it will be in a strong position to take advantage of what it describes and believes will be “an exceptional market opportunity in the non-standard sector”.