Lender warns of insolvency if it fails to secure scheme of arrangement

Wakefield-headquartered Non-Standard Finance (NSF) is still fighting to stave off the threat of insolvency, as its talks with advisors and the FCA over a potential scheme of arrangement agreement continue.

The credit group, which failed in a a £1.3bn hostile takeover bid of rivals Provident Financial in 2019, says it believes its Everyday Lending Limited (ELL) business has good growth potential provided the group’s regulatory issues are resolved, and it can successfully recapitalise.

NSF has been in talks with the FCA since August 2020 and in a trading update released today, the group warns: “Without the successful completion of a scheme of arrangement and subsequent recapitalisation of the group, the balance sheet remains deeply insolvent.

“In the event that the scheme of arrangement is not sanctioned by the court, or in the event that the subsequent recapitalisation of the business fails, there would then be a very significant likelihood of a group-wide insolvency (most likely administration), resulting in no return for current shareholders and a significantly reduced return for secured lenders.”

Jono Gillespie, group chief executive, said: “Everyday Loans continues to perform well, despite the considerable constraints it is operating under and this gives us confidence in the future of the business provided the Group can successfully complete its planned restructuring.

“We are making good progress with our restructuring plans, thanks to the support of our main lenders and largest shareholder and hope to be in a place to provide more specific details before too long.”

NSF adds it hopes to obtain greater clarity from the FCA in the coming weeks as to its views on a potential scheme of arrangement.

If a scheme is sanctioned, the group intends to proceed with a capital raise to generate funds for the payment of redress under a scheme as well as recapitalise the remaining group and enable its Everyday Loans (branch-based lending) to move forward with its growth plan.

NSF explains it is continuing to work with its secured lenders on an alternative transaction to be implemented in the event that a scheme of arrangement is completed but the proposed capital raise is unsuccessful, which would preserve the branch-based lending business as a going concern.

The group notes the proposed capital raise, while ensuring the group’s own future, “will materially dilute the interests of existing equity holders, most likely to negligible value” unless they choose to participate in the capital raise.

NSF says its secured lenders are providing short-term waivers of its loan to value covenant, ensuring the group has the liquidity to pursue its plans pending resolution of a potential scheme of arrangement and subsequent recapitalisation.

As part of these funding discussions, the group has reduced its gross borrowings by a further £20m to £255m, following the repayment of its £45m revolving credit facility last July.

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