Evil Diaries: Dough on the AMGO

The central feature of guarantor based lending is that the lender extends credit to somebody to whom it should not really lend. And the lender does this because the borrower is guaranteed by AN Other who is found acceptable to the lender. It does not take a great deal of imagination to see that these guarantees are called.

It was on this basis that Amigo (LON:AMGO) started off its quoted life in mid 2018 at around 300p and then the trouble started since AMGO did not take the trouble to check the borrower’s common sense. So instead of AMGO’s debt collectors cheerfully pestering the grannies of England, they experienced counterclaims galore. The FCA investigated and, as a result by late 2020, AMGO was insolvent with the debt collectors demanding their money back since they had paid to acquire a debt which, ab initio, could not be collected.

However, a new board decided that, provided they could get the debt collectors to write down their claims in a Scheme of Arrangement (they really had and have no choice), AMGO would emerge from collapse shaken but not stirred.

Thus the share price bottomed at 7p and now stands at 10p. Apparently everything is set up to see AMGO trade again, subject to the High Court agreeing the Scheme in latish March.

The alternative would be for the debt collectors to come up with a Scheme which left rather less on the table for equity holders. But they have have neither the time nor the money (due to walloping professional fees) to contemplate such a step. It is much wiser for them to take a hit and then sit around for new improved AMGO to sell to the debt collectors further doubtful debts. Only this time the debts will carry the acceptability imprimatur provided by the FCA.

I have bought circa 3m AMGO at 10p and expect to double or treble my dough by 30th June 2021.