The Amigo Holdings PLC (LON: AMGO) share price crashed 60.1% as investors reacted to the massive dilution outlined in the New Business Scheme proposed by the company to provide maximum redress to creditors.
The guarantor lender triggered a massive selloff after announcing that existing shareholders would remain with just 5% of the company if they did not participate in the proposed capital raise, part of the New Business Scheme.
Amigo said that it would have to issue 19 new shares for each existing share within a year of the New Business Scheme being approved, which will see equity holders lose over 95% of the value of their current holdings.
The UK High Court accused Amigo of favouring equity holders and bondholders over its clients in the previous scheme of arrangement, which the court rejected.
Today’s selloff is a good sign for Amigo given that unlike in the past when its shares rallied higher after announcing a similar scheme, this time the shares fell since shareholders were negatively affected by the scheme.
Amigo reiterated its commitment to making an initial contribution of £97 million, which it will generate internally primarily by running down its current loan book. The company said that it would increase the payout to creditors if the loan book generated a more significant return than expected.
The lender revealed that it would raise capital within one year of the New Business scheme being approved to fund its operations and contribute funds to the £15 million Scheme for creditors.
Gary Jennison, CEO of Amigo, said: “The Board is fully committed to providing the maximum amount of redress possible for qualifying creditors. Should creditors vote for the New Business Scheme and the Court subsequently approve it, these provisions provide additional protection for creditors and address certain concerns raised by the Court above the previous scheme. They are necessary for Amigo to survive and avoid insolvency.”
Amigo warned that if the New Business Scheme is not approved by either the shareholders or the courts, it will start the wind-down process of its business since it could no longer keep operating.
Shareholders would get nothing in return for their holdings in the company, and the creditors would get a much lesser amount than that proposed under the new scheme.
Therefore, despite the New Business Scheme seeming quite unfair to current shareholders, it is their best bet at getting something from the lender.
As much as Amigo’s past practices were not the best, the company played a crucial role in the UK’s lending market. Moreover, the demand for its services skyrocketed due to the pandemic that left many people unemployed.
*This is not investment advice. Always do your due diligence before making investment decisions.
Amigo share price.
Amigo shares crashed 60.17% to trade at 2.35p, falling from Friday’s closing price of 5.90p.
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Simon has over six years of professional trading experience across FX, commodities and equities. He has a strong passion for financial markets and is particularly focused on price action trading