The Amigo Holdings PLC (LON: AMGO) share price has been falling as investors wait for the guarantor lender to issue an update about the progress towards launching the much-awaited capital raise that will allow it to resume lending operations.
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In its last announcement, Amigo Loans told investors that it was talking with some institutional investors about the court-mandated capital raise that will significantly dilute existing shareholders.
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As a result, the lender agreed to issue 19 new shares for every existing share, diluting current shareholders by 95%. However, this was the only way the High Court judge would approve Amigo’s scheme of arrangement so that it did not favour shareholders at the expense of the affected customers.
Yesterday, we saw that Morses Club, another subprime lender, had embraced a similar approach in its scheme of arrangement, which is due for court scrutiny and approval in March 2023. The lender hopes to continue operating if the courts and affected customers approve its new scheme.
Amigo's situation is vastly different since the FCA already approved its return to lending in October. The company is currently running a pilot lending program via its new lending platform, RewardRate.
The new lending platform is part of a revamp of the company’s lending practices by providing a transparent and fair loan pricing structure that lets the borrower know the exact amount they will repay if they borrow a loan from Amigo Loans.
The new pricing structure is a massive departure from Amigo Loans' previous opaque pricing. As a result, many customers complained that they ended up paying way more than expected when they took the loans.
I urge investors to be patient with Amigo as it works out the details of its upcoming equity raise that will see the lender satisfy the last significant requirement under the scheme of arrangement approved by the High Court.
Meanwhile, those who lodged complaints against Amigo Loans should rest easy knowing that the company is mandated to fairly compensate them under the new scheme of arrangement.
*This is not investment advice.
Amigo Loans share price.
The Amigo Loans share price has fallen 6.34% in the last week as the firm prepares to resume lending.
eToro is a multi-asset investment platform. The value of your investments may go up or down. Your capital is at risk.
