Subprime lender, struggling with debts, gets reprieve from creditors
The high-cost lender CURO Group Holdings, whose loans to subprime consumers have drawn regulatory scrutiny, got a lifeline from its own creditors this week after missing an interest payment.
The company has lost money the last two years as it shifts away from small payday loans — in favor of larger installment loans with relatively high interest rates that do not inoculate it from regulatory criticism.
In the past few years, it has brought in a new CEO, reworked its board, sold its legacy payday loan business and bought three high-cost consumer lenders in the United States and Canada. But the strategy shift hasn't paid off thus far, and last week the company failed to make an interest payment to bondholders.
On Thursday, CURO Group said it reached an agreement with bondholders that gives it a grace period of 30 days for the interest payment default. It also said that negotiations on a broader restructuring are continuing.
"The company and its advisors continue to be engaged in discussions with certain of its key lenders and other stakeholders regarding a potential comprehensive financial restructuring to strengthen the company's balance sheet and financial position," CURO Group said in a securities filing.
The Chicago-based lender did not respond to several requests for comment.
CURO Group's stock trades at just 34 cents per share, down 97% from a recent high of $19.52 per share in late 2021.
The company has loaded itself up with debt in recent years, partly to help fund three acquisitions. In 2021, it bought the Canadian consumer lender Flexiti — though it sold that business last year. In the United States, it bought the subprime lenders Heights Finance in 2021 and First Heritage in 2022.
CURO Group also sold its legacy U.S. payday lending business in 2022. That division operated under the names "Speedy Cash," "Rapid Cash" and "Avio Credit."
Douglas Clark, who previously led Heights Finance, became CURO Group's CEO in November 2022 and was tasked with shepherding the company through its strategy revamp.
But there may have been "too many balls in the air" as CURO Group drastically shifted its operations, said Vincent Caintic, an analyst at Stephens Inc.
"This all evolved very quickly," he said. "I don't really even have a baseline for how this business is supposed to be."
The company lost nearly $267 million last year and $185.5 million in 2022, a sharp reversal from previous years when annual profits topped $50 million. Its loan growth has slowed, so it has brought in less interest income, and it has also had to set aside more money as cash-strapped borrowers face more difficulties in repaying their loans.
"Both of those combined reduces earnings to the point in which you're not generating enough capital to offset what's coming due," Caintic said.
Other high-cost lenders, he noted, have also brought in less money and set aside higher loan-loss reserves without facing CURO Group's problems. Competitors include the publicly traded companies OppFi and Enova International.
The payday lending business — where lenders make small short-term loans to cash-strapped consumers at high interest rates — has long drawn criticism from federal and state regulators. Against that backdrop, CURO Group has moved in recent years into larger-balance installment loans, which are often opposed by consumer advocates and where the regulatory structure varies in different states.
In California, CURO Group was one of the companies that opposed a 2019 state law that capped rates on consumer installment loans of between $2,500 and $9,999.
The shift away from payday lending has resulted in CURO Group making loans that charge lower interest rates. Some 54% of its loans in the U.S. had annual percentage rates below 36% as of Sept. 30, according to an investor presentation. Loans with APRs above 36% — which consumer advocates contend are predatory and abusive — made up the remainder of its U.S. loans.
The change in CURO Group's business model hasn't prevented the company from landing in regulatory hot water. Last year, the Consumer Financial Protection Bureau filed a lawsuit against Heights Finance, one of the lenders that CURO Group bought in 2021. The CFPB said the company operated a "loan churning scheme" that forced borrowers to refinance multiple times and pushed them into "financial quicksand."
CURO Group has denied the allegations and said last year that it will "vigorously defend its business practices." It also said the CFPB lawsuit revolves around certain small loans that Heights Finance made before CURO Group acquired it.
The ratings agency S&P Global has noted that "regulatory risk remains significant" since almost half of CURO Group's loans in the United States carry APRs above 36%. A crackdown on high-cost consumer loans in Canada only adds to the regulatory risks the company faces, S&P analysts said last year.
This week, as CURO Group sought flexibility from bondholders, S&P downgraded its credit rating to the speculative grade of CCC- and the rating on its junior debt to C, S&P's second-lowest rating.
CURO Group had $84.6 million of unrestricted cash at the end of last year, but it has to make $37.5 million in interest payments on two sets of its debts semiannually, S&P analysts wrote in a note Tuesday. Even with the flexibility it sought from its creditors, the company "could have insufficient liquidity within six months," the S&P analysts wrote.
Jefferies analyst John Hecht also downgraded his view of the company's stock on Tuesday from "buy" to "hold," given the restructuring talks that were underway.
"Our prior thesis was predicated on the potential for CURO to execute a transition plan successfully," Hecht wrote in a note to clients. "While this is still possible, we feel there is greater uncertainty now given the need for bondholders to agree to a temporary concession."
