Lender anxiously waits on regulator before it can launch life-saving £80m fundraise
Subprime lender Non-Standard Finance (NSF) remains on the brink of its own cash crisis that threatens its ability to continue trading.
The group needs to launch an £80m capital raise to fund customer redress and strengthen its balance sheet but first needs to resolve ongoing problems with the Financial Conduct Authority (FCA).
But it has warned “there is a possibility of the Group going into insolvency” if the fundraising is unsuccessful or takes longer than expected.
While NSF has a £200m securitisation facility that remains undrawn, it believes it won’t be able to use it because it would be in breach of covenants at the point it would need to call upon it.
The Morley-based lender was severely hit by a perfect storm of both the pandemic, which saw profits plunge resulting in a loss before tax last year of £35.2m and an investigation by the FCA after a visit by the regulator in March last year as part of a multi-firm review “raised a number of concerns” about operating procedures and processes in the guarantor loan division, which has since been placed into a managed run-off.
The group has already earmarked nearly £17m for its redress programme while it continues its discussions with the FCA with an additional £1.9m expected to cover estimated penalty interest.
In its latest half year results the business notes that its plans for a substantial equity capital raise which is expected to be in the region of £80m remain subject to the ongoing independent regulatory review and continued support of Alchemy and other key shareholders.
Jono Gillespie, group chief executive officer, said: “After a great deal of work over the past year and despite the challenges presented by the pandemic and a complex regulatory landscape, we are determined to continue to deliver on our original purpose. We are progressing our discussions with the FCA and hope to reach a conclusion soon.
“As soon as we are able to resolve the Group’s outstanding regulatory issues, we are focused on executing a substantial capital raise of around £80m that will be used to both fund the payment of redress as well as strengthen significantly the Group’s balance sheet, underpinning our return to profitable growth.”
In the first half of 2021 the group incurred pre-tax losses of £7.5m, a marked improvement on the pre-pandemic half-year loss of £22.4m.
Gillespie said that the need for the business which was founded in 2015 to support people on low incomes or with poor credit history with access to credit, is as important now as ever.
He said: “Today there are more than 10 million people in Britain whose financial circumstances mean that they are effectively excluded from mainstream credit but whose financial needs – whether to repair a car or buy a new washing machine – still need to be addressed. It is also clear that in the past two years the landscape has changed, prompting the exit of a number of leading companies that have either quit the sector altogether or have severely curtailed their activities, leaving many consumers with even fewer options to access regulated credit.
Over the first half of the year the business noted that branch lending had increased profit to £2.1m but was still behind pre-pandemic levels, while home credit profit had fallen to £969,000 compared to £2.2m in 2020 and £3.2m in 2019.
