Subprime lender Goeasy secures debt relief after share slide

The company is attempting to stabilize operations through a six-point plan that includes scaling back automotive lending through LendCare. Photo by Comstock Images/Getty Images

Article content

Goeasy Ltd. won concessions from its lenders to keep key funding lines open after a surge in loan losses at its troubled auto lending unit sent shares and bonds tumbling, deepening scrutiny of the Canadian subprime lender’s financing model.

Article content

Bank and financing counterparties have agreed to waive certain financial covenants tied to its fourth-quarter results and amend terms on its main credit facilities, according to a statement Tuesday. The changes ensure continued access to funding after losses tied to its unit that provides autos and powersports equipment loans, LendCare Holdings, left the firm briefly out of compliance with leverage requirements.

Article content

Article content

Article content

Earlier in March, Mississauga, Ontario-based Goeasy suspended its dividend, withdrew guidance and disclosed about $331 million in net charge-offs for the fourth quarter, including roughly $233 million linked to LendCare. So far this month, the stock has plunged more than 60 per cent while its 6.875 per cent note due 2030 has fallen 10 cents on the dollar to 79.25 cents, according to Trace data.

Article content

Article content

The amended agreements leave Goeasy’s revolving credit and securitization facilities in place, but on tighter terms. Interest spreads on both lines were increased by 100 basis points, and eligibility criteria were revised to exclude loans originated by LendCare, the epicentre of the company’s recent losses.

Article content

Lenders also reduced the size of the company’s consumer securitization warehouse facility to $1.12 billion from $1.4 billion, while maintaining its $550 million revolving credit facility, but limiting borrowing availability without additional consent.

Article content

The changes effectively reset Goeasy’s lender framework after a period marked by deteriorating credit performance. Within LendCare, weaker recoveries on delinquent accounts forced the company to write off loans after extended efforts to restructure debt, repossess vehicles and sell collateral through auctions. Industry-wide bottlenecks — including capacity constraints at repossession firms and auction networks — have further slowed recoveries.

Article content

Article content

Chief financial officer Felix Wu said the revised facilities, combined with operating cash flow, provide sufficient liquidity to keep executing the company’s strategy. Goeasy had about $240 million in cash at the end of February and total liquidity of up to $983 million, though a significant portion of that capacity won’t be accessible until the middle of this year under the new terms.

Article content

Article content

The company is attempting to stabilize operations through a six-point plan that includes scaling back automotive lending through LendCare, cutting costs and shifting focus to its Easyfinancial platform.

Article content

The turmoil caps months of mounting pressure. Goeasy has faced heightened scrutiny since September, when short seller Victor Bonilla of Jehoshaphat Research alleged the company was delaying recognition of rising delinquencies and loan losses — claims it denied at the time.

Article content

After this month’s disclosure of charge-offs and plans to revise past disclosures, Bonilla said the company appears to have “come clean” and begun rebuilding credibility, though he stopped short of turning bullish.

Article content

Article content

Article content