Last checked at 28 Apr 2020 07:00
28 April 2020
Distribution Finance Capital Holdings plc("DFC" or the "Company" or together with its subsidiaries the "DFC Group")
Trading Update in light of COVID-19 pandemic
On 2 April 2020, the Company announced that it had received an extension to a temporary waiver from its senior and senior mezzanine facility lenders (the "Lenders") of an early amortisation provision in its funding facilities.
Since its last update, the Company has been working collaboratively with the Lenders with the objective to agree the shape of its funding facility and covenants appropriate for the current climate, particularly as the loan book stock turn has slowed in light of most dealers being closed during the COVID-19 public health crisis. Both the Company and the Lenders believe that without further operating data relating to the emerging trading pattern of dealers and the impact of the lockdown, it is difficult to agree appropriate terms for a longer-term waiver. The Company remains in ongoing constructive discussion with the Lenders and further weekly extensions to the temporary waiver have been granted during this period of negotiation. This pattern of waiver extension may continue until such time as there is greater clarity and analysis of the current situation. The Company recognises the current constraints on the facility in light of the Lenders' own credit risk appetite given the current economic environment and the impact of COVID-19.
Notwithstanding the economic landscape, the Company's loan book continues to perform well and remains stable. Despite some of its industrial sector clients continuing to trade during the lockdown, in the near-term demand is likely to be curtailed whilst the majority of the Company's dealer networks and manufacturers remain closed. However, the Company believes that its predominant lending sectors of caravans, recreational vehicles, small motorboats and motorbikes will perform strongly after Government restrictions are lifted, as UK consumers seek to "staycation" and continue to mitigate COVID-19 risk.
In light of the current position with its Lenders, the Company believes it is likely that its existing lending portfolio will modestly reduce in the near-term. Normal levels of new lending should be achievable once the existing facilities are renegotiated with the Lenders, or can be re-financed in whole or part through alternative wholesale funding and/or the Company receives a banking licence, and as many dealers reopen for business in the post-lockdown period.
In addition to its ongoing banking licence application and negotiations with the Lenders, the Company has made an application to the British Business Bank to participate in its Enable Funding Scheme, which provides wholesale finance to non-bank SME lenders such as DF Capital. This application is progressing.
The Company remains committed to its bank licence application, which is subject to regulatory approval. In light of the current pandemic, the Company has completed analysis of its business plan and forecasts, subjecting them to severe assumptions, including a very prolonged lockdown of client premises. This analysis shows that the firm can continue to meet its desired capital and liquidity position at all times through the pandemic. Consequently, the Board remains confident that its internal assessment demonstrates that as a bank the Company would not breach any of its anticipated capital or liquidity limits. DF Capital would be well capitalised, a strong and secure savings franchise and in an enviable position to support its SME borrowers, many of whom are in the domestic leisure-sector, in the post lockdown period.
Additionally, the Company has announced a number of cost mitigation actions aligned to an expected lower loan book in light of the restrictions on its facility, which include potential staff redundancies and furloughing of certain employees, who will receive 100% of their salary and benefits during the furlough period.
For the avoidance of doubt, given the current uncertainty in relation to the Company's ongoing funding strategy driven by COVID-19 and the associated potential impact on our customers, our previously communicated financial guidance for 2020 should no longer be considered current. The Company will however provide an update to investors on its outlook at the time of its forthcoming results for the year ended 31 December 2019, the timing of which will be notified in due course.
Chief Executive Officer, Carl D'Ammassa commented:
"The Company has an excellent lending franchise and strong support from its dealers and manufacturers, but these are challenging economic times on the back of the global public health crisis. We have worked hard to agree a route forward with our Lenders, and whilst conversations remain constructive, as yet we cannot confirm that agreement on a medium term waiver has been achieved. Sadly we have had to announce a programme of restructuring that will see some employees furloughed or facing redundancy. There is no doubt that this is a critical time when dealers need us to be flexible and able to provide ongoing funding to help them navigate the challenging months ahead."
Chairman, John Baines added:
"We strongly believe in the viability of the Company's lending proposition and it will be frustrating to see our loan book reduce in the near term. Should we receive a bank licence, the firm would be able to increase its loan book in line with the strength of client demand, whilst being well capitalised to navigate COVID-19 as a legacy free banking franchise. We will be working hard to unlock the current situation and ensure the Company can continue to play a positive role in the post-COVID-19 economic environment, and we are hopeful that this will be as a bank."
The Company will provide further updates as appropriate.
Enquiries:
Distribution Finance Capital Holdings plc
Carl D'Ammassa - Chief Executive Officer +44 (0) 20 3937 6390
http://www.dfcapital-investors.com
Macquarie Capital (Europe) Limited (NOMAD and broker)
Alex Reynolds +44 (0) 20 3037 2000
Jonny Allison
Blue Pool Communications (Financial PR)
Nick Lord +44 (0) 7501 271 083