Alcentra Ltd. is among creditors set to take a 20% equity stake in struggling UK subprime lender Non-Standard Finance Ltd. in exchange for forgiving some debt under the company’s proposed restructuring.
(Bloomberg) — Alcentra Ltd. is among creditors set to take a 20% equity stake in struggling UK subprime lender Non-Standard Finance Ltd. in exchange for forgiving some debt under the company’s proposed restructuring.
Alcentra led a group of investors on a secured credit facility for Non-Standard Finance in 2017, according to company filings. Now, those creditors have provisionally agreed to swap £71 million ($88 million) of the debt for shares of the company, NSF said in a statement Friday, with borrowings from the facility totaling £255 million at the end of 2022.
The swap is a key part of Non-Standard Finance’s restructuring plan after the company was hit with regulatory scrutiny over some of its lending, which forced its home-credit division into administration last year. Non-Standard Finance operates 140 Everyday Loans branches, marketing credit to individuals for purposes such as debt consolidation or home improvement.
Non-Standard Finance last month began a court-supervised restructuring known as a scheme of arrangement to handle customer redress claims and regulatory fees.
Alcentra, an alternative credit manager that since November has been owned by US mutual-fund giant Franklin Resources Inc., declined to comment. Private debt provided by firms such as Alcentra has ballooned in size in recent years as banks pulled back from lending to riskier companies.
Now, with central banks across the world raising interest rates and the economy slowing, direct lenders could face trouble in their portfolios. For borrowers under threat of default, one potential outcome is for private lenders to write off some or all of their liabilities in exchange for equity in the businesses.
Non-Standard Finance plans to raise about £95 million in equity capital this year, which will “materially” dilute existing shareholders unless they participate, it said. The plan also calls for extending the maturity of the debt facility provided by Alcentra and other investors from August this year to June 2027.
Non-Standard Finance’s stock market value has shriveled to £1.2 million from £116.3 million in 2015, shortly after its initial public offering. The company made headlines in 2019 when it made an unsolicited £1.3 billion takeover offer for rival Provident Financial Plc — a company that was about six times bigger than Non-Standard Finance. It later abandoned the effort. The stock fell 6.2% Friday.
If the capital raise is successful and the restructuring is approved by the court, Alcentra and other creditors would become shareholders alongside special situations firm Alchemy Partners LLP. Alchemy held a 30% equity stake in the company as of the end of March while Marathon Asset Management Ltd also held a stake of about 8.3%, filings show.
Alchemy and Marathon didn’t immediately respond to requests for comment.
In the event the recapitalization fails, Alcentra and other lenders could take over ownership of the business in exchange for a release of a portion of their debt and a new lending facility, the company said. If both of those approaches fail or the court rejects the scheme of arrangement, the most likely outcome would be company-wide insolvency, it said.
(Corrects Marathon’s full name to Marathon Asset Management Ltd.)
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