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Rating Action:

Moody's assigns definitive B1 rating to Amigo Holdings Limited

24 Jan 2017

London, 24 January 2017 -- Moody's Investors Service (Moody's) has today assigned a definitive B1 Corporate Family Rating (CFR) to Amigo Holdings Limited (Amigo), the holding company of the UK-based Amigo group. Moody's has also assigned a definitive B1 rating to the GBP275 million long-term, senior secured bond, issued by Amigo Luxembourg S.A., which is backed by the parent, Amigo Holdings Limited. The outlook is stable for both issuers.

Today's rating action confirms the provisional ratings of Amigo and the debt issued by its subsidiary assigned on 11 January 2017. The final terms and conditions of the notes, issued on 13 January 2017, are in line with the draft documentation reviewed for the provisional ratings assigned on 11 January 2017. The Agency notes that Amigo Holdings Limited is still within the restricted group and part of the shareholder loan notes issued by the company has not yet been converted into common equity.

According to the bond's offering memorandum, Amigo Holdings Limited should be removed from the restricted group within 90 days of the issue date and a new holding company should be incorporated. This new incorporated holding company will be the entity that will produce the consolidated accounts for Amigo Group. Since Moody's expects that Amigo Holdings Limited will be effectively removed by the restricted group within the set timeframe and the shareholder loan notes converted into common equity, it is now changing the rating to definitive from provisional. Additionally, once the new holding company will be incorporated, Moody's will assign the B1 CFR to this new company and withdraw the rating assigned to Amigo Holdings Limited.

A full list of the assigned ratings is provided at the end of this press release.

RATINGS RATIONALE

Amigo Group is the leader in the UK market for unsecured guarantor loans, with an estimated 85% share. The guarantor loan is a personal loan where interest and principal repayments are guaranteed by a second individual, typically a family member or a friend of the borrower. Amigo offers only one product, which is a guarantor loan under which individuals are able to borrow between GBP500 and GBP7,500 over a term of between 12 and 60 months at a fixed annual percentage (with the same rate applicable to all borrowers).

The CFR of B1 is supported by Amigo's market share and simple business model, strong profitability and liquidity metrics and a supporting ownership structure which shows an alignment of interests between the senior management of the company and its main shareholder. Moody's also sees constraints to the rating resulting from the firm's monoline business model, relatively simple risk management framework, albeit mitigated by a strong compliance culture, and modest asset quality. In addition, regulatory risk is a key concern, but the agency believes the likelihood of a change in the regulatory framework in the unsecured credit market to be very low.

The rating also incorporates solid capital levels, despite the reduction following a partial repayment of the shareholder loan, and a comfortable liquidity position post-issuance of the proposed bond. Following the transaction, Amigo's leverage, calculated as Tangible Common Equity (TCE) relative to Tangible Managed Assets (TMA), will remain solid at 29% from 50% at end-September 2016, according to Moody's calculation. Moody's believes that any subsequent improvement would also depend on Amigo maintaining strong profitability and a disciplined underwriting criteria. The proposed funding structure is also expected to improve Amigo's liquidity by providing some diversification in funding and by lengthening the maturity profile of its debt facilities. However, Moody's also notes the concentration in terms of debt maturities, with the GBP57 million new revolving credit facility maturing in five years and the senior secured bond in seven years.

Amigo has shown a strong level of profitability significantly higher than that of peers over the last few years, owing to its simple and effective business model, whereby it applies an interest rate typical of near- and subprime clients to customers which generally have a better credit quality because of the presence of the guarantor. This, together with disciplined underwriting criteria, has allowed the company to maintain an impairment rate well below those of its peers in the near-prime lending market. However, Moody's believes that competition could increase over the next few years, driven by the very high margins of the sector and relatively low barriers to entry.

Moody's views the absence of a dedicated risk management and internal audit function as a weakness. This is characteristic of many companies of a similar size to Amigo, but the agency takes some comfort from the fact that the firm has an experienced management team and solid compliance culture. The company's focus on compliance and on mitigating conduct risk is evidenced by the way employees are assessed and how Amigo's guaranteed loan product is designed. In addition, the company received its full authorization to operate from the Financial Conduct Authority in June 2016. The authorization allows the company to operate on a permanent basis and indicates that the company's product and processes are in compliance with regulatory standards in relation to consumer protection and welfare.

RATIONALE FOR THE STABLE OUTLOOK

The outlook on Amigo's ratings is stable, reflecting the company's lengthened maturity profile following the expected successful issuance of the senior secured note and the agency's expectation that Amigo will continue to maintain solid internal capital generation.

WHAT COULD CHANGE THE RATINGS UP/DOWN

Amigo's CFR could be upgraded because of: (i) an improvement in asset quality metrics, with problem loans falling below 5% of total gross loans; (ii) a strengthening of the risk management framework; and (iii) an enhanced degree of diversification away from the simple guarantor lending model, while maintaining solid credit fundamentals.

The firm's rating could be downgraded because of: (i) an unexpected decline in profitability metrics; (ii) a TCE / TMA ratio falling below 14% for a protracted period; and (iii) a loosening of underwriting criteria likely to result in higher credit risk and loan impairments.

PRINCIPAL METHODOLOGY

The principal methodology used in these ratings was Finance Companies published in December 2016. Please see the Rating Methodologies page on www.moodys.com for a copy of this methodology.

LIST OF ASSIGNED RATINGS

..Issuer: Amigo Holdings Limited

.... LT Corporate Family Rating, Assigned B1 Stable from (P)B1

..Issuer: Amigo Luxembourg S.A.

.... BACKED Senior Secured Regular Bond/Debenture, Assigned B1 Stable from (P)B1

Outlook Actions:

..Issuer: Amigo Holdings Limited

....Outlook, Remains Stable

..Issuer: Amigo Luxembourg S.A.

....Outlook, Remains Stable

REGULATORY DISCLOSURES

For ratings issued on a program, series or category/class of debt, this announcement provides certain regulatory disclosures in relation to each rating of a subsequently issued bond or note of the same series or category/class of debt or pursuant to a program for which the ratings are derived exclusively from existing ratings in accordance with Moody's rating practices. For ratings issued on a support provider, this announcement provides certain regulatory disclosures in relation to the credit rating action on the support provider and in relation to each particular credit rating action for securities that derive their credit ratings from the support provider's credit rating. For provisional ratings, this announcement provides certain regulatory disclosures in relation to the provisional rating assigned, and in relation to a definitive rating that may be assigned subsequent to the final issuance of the debt, in each case where the transaction structure and terms have not changed prior to the assignment of the definitive rating in a manner that would have affected the rating. For further information please see the ratings tab on the issuer/entity page for the respective issuer on www.moodys.com.

For any affected securities or rated entities receiving direct credit support from the primary entity(ies) of this credit rating action, and whose ratings may change as a result of this credit rating action, the associated regulatory disclosures will be those of the guarantor entity. Exceptions to this approach exist for the following disclosures, if applicable to jurisdiction: Ancillary Services, Disclosure to rated entity, Disclosure from rated entity.

Regulatory disclosures contained in this press release apply to the credit rating and, if applicable, the related rating outlook or rating review.

Please see www.moodys.com for any updates on changes to the lead rating analyst and to the Moody's legal entity that has issued the rating.

Please see the ratings tab on the issuer/entity page on www.moodys.com for additional regulatory disclosures for each credit rating.

Dany Castiglione
Vice President - Senior Analyst
Financial Institutions Group
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Nicholas Hill
MD - Banking
Financial Institutions Group
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

Releasing Office:
Moody's Investors Service Ltd.
One Canada Square
Canary Wharf
London E14 5FA
United Kingdom
JOURNALISTS: 44 20 7772 5456
SUBSCRIBERS: 44 20 7772 5454

No Related Data.
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