Roundtable Discussion; The Future of Mineral Sands. Watch the video here.
As a shareholder I want to remind you of your responsibilities to existing shareholders. I am assuming a 1:2 equity : debt split. Why raise £100M at these depressed prices from a largely retail investor base that will only have one result, the shareholding will go to larger vulture funds.
You have £100M unused limit on the securitisation. Raise £50M in the first instance and prove the concept on the new business and get the share price higher. This gives you £150M firepower for new lending and clears the negative revenue reserves. The operating cashflow from a £150M new lending book even at a 30% APR is substantial and in itself funds new lending.
The last 6 months operating cashflow has averaged £19M a month. I don’t know what it has been since Sept but I’m guessing say £15m a month, that’s £90M by March, lets call it £75M. You offered £15M last time in cash, I don’t know what you are offering this time but if its £50M, that’s 3.3x higher. At £75M that’s 5x higher. As you note, the claimants will still get a balance reduction where it is warranted (current borrowers) and I am assuming a reasonable part of the £75M will go to past borrowers as you can’t offer a balance reduction here. However, it must be more difficult for a borrower to argue they couldn’t afford the debt when they ended up repaying it. I know there will be exceptions here, particularly where it was repaid by the Guarantor.
As you have assumed £270M cash liability in the accounts, what happens to the difference of say £195M (£270M-assumed £75M cash contribution). Is this written back to the P&L or some part of it. This also clears the negative revenue reserves.
You need to scale back your ambition as this is not the way to treat existing shareholders. Raising £100M equity at these levels makes no sense whatsoever and as far as I am concerned will open you up to a claim for negligence from existing retail shareholders. Its is grossly incompetent and negligent in my opinion as is going from £15M cash to £75M but that is another issue, but again an incompetent one.
Forget a premium raise that's total rubbish. The big boys are taking on retail, they dont need to offer a premium and they wont. There is way too much uncertainty even if approved by Court. It will be the classic structure, discounted price.
The shareholder base of this Group is largely retail, if you don't give the clear message to this mgmt team to scale back their ambition you will lose your shareholding to the vulture institutions that will come in and underwrite the larger transaction. They should be told in no uncertain terms that it is NOT necessary to raise £100M at these depressed levels. There is no need for that, the £50M equity, the £100M securitisation facility and the material operating cashflow from lending even at a 30% APR is more than enough to scale in to the new business lending. Existing shareholders need to be clear on this or you will lose your shareholding to the bigger vultures who will descend on this and rip it away. This mgmt team are maybe nice people but not financially astute. They need to be told in no uncertain terms. Scale back their ambition with your money.
This Mgmt team are as stupid as the last lot. They should confine equity raise in first instance to £50M and with the £100M unused limit on the securitisation gives them new lending firepower of £150M. The monthly positive operating cashflow in last 6 months is average £19M a month. For next 6 months say this is £12M, thats £72M total. They offered £15M cash last time, they gave bull..t reasons why they can go higher this time, lets say £50M, thats 3x higher, give claimants the whole £70M odd thats 4.6x higher. [Again demonstrates their incompetence]. This materially reduces the dilution and they use the £150M to prove concept and get share price higher. That is the sensible way to go rather than their vague bull...t. The £50M also clears the negative revenue reserves. These guys have no idea what they are doing. They dont need to raise £300M straight away. Live within your means and prove yourself, amateurs
I never used the term "last man standing" nor was that something I implied, that term was used by someone else who gets confused over and over again. In my extreme(for the reason I already explained) example I had one "qualifying" beneficiary because they were adjudicated as deserving an award by whoever does this. This would be the definition of "class" of beneficiary. Amigo wont qualify for obvious reasons but lets say a way could be found to recover surpluses that is still problematic as there will be problems with returning this to the shareholders who funded this share award as the share register is dynamic. It also exposes Amigo management to share price risk on deficits. A share, that's value fluctuates is not the way to pay defined liabilities. Also the FCA made an argument the claimants were unsophisticated and didn't understand what they were voting on and now all of a sudden they are capable of valuing the Amigo share price and capable of accepting that in return for a defined benefit. FCA cant have it both ways.
So if there is a deficit can the Trust ask for more shares or cash or will it be one sided only. Just putting $15M into shares results in 150M, £30M, 300M shares. Where do you think the sp will go over the next 3 years if the market knows that this scale of shares might come to market at some point. Years of uncertainty and a terrible technical position for the shares which will affect the market cap and Amigo's ability to raise future funding, debt and equity.
If there is no intention to give renumeration greater than the adjudicated claim then shares are not the right instrument as their payoff is unknown.
To demonstrate the stupidity of this idea consider the extremes. Lets say the £15M upfront cash was used to buy 150M new shares at 10p issued to the Trust day one. Lets say in 3 years time the sp is up 3x and we are through the adjudication process (I want to use extremes to demonstrate the stupidity of this idea) one party is successful with a claim amount of £50K. He is now the only beneficiary of the trust and walks away with shares worth £45M. Do some of the people on here think the existing shareholder base is totally stupid. The claimants will be owed what they are owed as determined by whoever (FOS, courts, I don't know who), they should get that amount and not a penny more, in a mixture of cash and loan adjustments. Getting unlimited upside is moronic and unless someone has a direct line to God and can say what the numbers of successful claimants will be and the average award this idea first mentioned by the FCA barrister is totally unpractical and idiotic. Put something together that pays claimants what they are owed, that's it. They are not owed unlimited upside. If they want that they can buy the shares with their compensation. Totally stupid idea, shares to a trust.
Because it was all so incompetent and really hard to understand why, a small part of me thinks that Dicker didn't really try to win. He will recognise the FCA don't like this sector and that he was taking on the establishment and didn't really want to win as in the long run it wont do him any good. It is that or he was out of his depth I don't know which, but whatever the reason nobody came out of this well.
I believe the FCA will be sued if this collapses. Given their role they should be accountable tor a high standard of professionalism, clarity, conciseness and at a very minimum understanding the minute details of the situation and not putting themselves in highly conflicted situations. To me they didnt show any ofthis. They will pay a price for that.
Im afraid, Maverick, I don't agree with writing to Treasury to complain about the FCA. That won't achieve anything and I dont have confidence in the Board either and so I wrote telling them what they should do now. No negotiation with FCA on SOA2 and just tweak the four years to unlimited and will leave it to them whether they offer interest on payments after year 4. I dont support new equity now, unsecured claim for equity swap, none of that. If the FCA don't accept that, call their bluff
The objective of SOA is to transfer value from shareholders to unsecured claimants but to cap it at a reasonably large number. Amigo were not only proposing doing that but had already set aside a very large amount to make this redress by balance adjustments. The judge wanted proof and it was sitting under all their noses but they didn't know how to read it from the fin. statements. That for me is the really sad bit, the proof was there in black and white, proof the judge kept asking for
My brother in law is a barrister and before he changed to law he did a finance degree. To argue this case sensibly you did need some detailed financial knowledge. Dicker was the wrong guy, he was comfortable on the legal point that it isn't for the court to design the optimal solution merely opine it is Fair. That was all he really said and when the FCA made some outrageous statements he said little. He did try to remind the court that despite the floating charge on cash the Board had to be mindful of their responsibilities to those creditors when the FCA were arguing there was loads of cash to finance other alternatives.
All he had to say was his client had designed a package excluding the 15% of future profits worth about a quarter of a billion pounds and they have already taken this from shareholders. That's done, waiting to be utilised and indeed we used £80m or so in this last 9 months. We don't know where the claims will settle but our best estimate is also about £250M. We recognise we cant fix everything with loan adjustments and so we have a cash component of £15m now to get going and then 15% of the next four years profits will add more cash and cover any shortfalls in our estimates. If we have done wrong we will make restitution and we have already provided for most of it in a very tangible way which you can see from a review of our financial statements. To the extent our estimates are wrong we have built in some cover for this scenario. The claimants recognised the value of our contribution we hope the court does too.
That was all they needed to do but instead we got a fixation on the £15m of cash or 10% restitution as the FCA called it and the judge referenced. Totally unbelievable, it would be funny if it wasn't real.
The issue for them isn't shareholders, its claimants if they lose out. They are vulnerable and the FCA basically said there is no way they understand what they voted on. Rather ironic really, as I think the FCAs understanding was basic in the extreme.
The FCA have put themselves in a difficult place. I noted someone saying it is ridiculous to think they will be sued. If all thosev70k odd borrowers who approved the scheme realise they are not getting their quarter of a billion pounds I am sure someone will represent them on a no fee basis against the FCA. The first rule of suing someone is make sure they can pay, otherwise it is all a bit academic. I think I could win a case against the FCA given the statements they made in court. I also think the FCA regulating Amigo and now some other part representing the best interests of claimants against Amigo is a huge conflict. The Board of Amigo presented a reasonable restitution and evidenced it with a cash projection. The problem is that it does require some financial and financing knowledge to understand their case as its a little complicated. They let themselves down in their explanation of the facts. I think they can only appeal on the basis of law and cant really do so arguing we are sorry but didn't explain ourselves properly can we try again. Don't think the HC works like that. It is a farce though, thats for sure.
Amigo has about £80M of book equity at Dec. If they are reducing a loan balance and it is in a secured pool they need approval of a first fixed charge holder or they remove it from the pool which means it is financed by shareholders. Because shareholders equity (book value) is now so small they have very little wriggle room. They are running out of options and hence why they presented Insolvency as real if claimants didnt feel £230M odd plus whatever 15% of profits will be for 4 years is not enough. Soon enough they will have no option to remove loans from secured pools and then they are doing only what they are told by the secured lenders. Thats how it works. FCA/FOS/HC thinking they can control things are misguided and the FCA thinking there is no constraint on timing just isn't real
Shareholders equity can be represented my many different assets not just cash. I'm afraid it was and currently is shareholders equity. Amigo have made provision against this of over £230M because they expect in time judgements to this amount will be found against them. This isn't proven yet but an expectation. Amigo can make all the provisions they like without secured lender permission as its not real until its utilised. The entries when the loan is reduced are credit gross loan, debit provision, thats when any secured lender gets to intervene. You cant just reduce his loan balance and notify the borrower that their loan balance is reduced without their permission. If you think IFRS accounting and UK commercial law are wrong that's one thing but do not think for a moment that the FCA are doing anyone any favours. The secured lenders couldn't give a toss what the FCA/FOS/ or anyone else thinks SHOULD happen. They will be the ones that decide what does actually happen as you can already see with the securitisation pool.
Its not strange its WRONG. The correct measure of shareholder losses is not the market value of an illiquid stock but the book equity. There is no debate on the level of losses when you use this metric, the share price depends on your 2 dates and I think means nothing as it is just retail accounts punting with very limited knowledge and certainly no capability to truly value Amigo which is impossible and has been for a while
Every loan in Amigo is secured to either the securitisation lenders or the Bondholders. The securitisation lenders are getting all cash and not even allowing their loans make a contribution to operating expenses. A fixed charge on the rest means NO ONE not even the Queen herself can reduce the asset supporting that fixed charge without their permission. What do you not understand about the complaints re-imbursement is an UNSECURED liability of Amigo. There isnt a hope in hell now that the secured lenders will allow their cash or their assets to be reduced given the close call cashflow schedule Amigo presented to court. It just wont happen and the HC sure as hell are not going to overturn such a basic building block of commercial law in the UK. The unsecured creditors wont even get the balance adjustment now without a deal, thats £151M as she currently stands. This is the stupidity of this situation, the utterly ridiculous focus on £15M which is only really relevant to past borrowers