Distribution Finance Capital Holdings PLC on Wednesday warned that it may not be ‘substantively repaid’ by customer RoyaleLife, but expects its loan book to continue growing.
Shares in Distribution Finance were down 31% at 17.98 pence each around midday on Wednesday in London.
The Manchester, England-based specialist bank said it expects to report ‘no less than’ £2.0 million in pretax profit for 2023, despite having delivered a £3.2 million profit in the first half alone. This was ‘in light of any expected credit loss provision in relation to RoyaleLife’.
Distribution Finance, which provides working capital solutions to UK dealers and manufacturers, previously reported that as of June 30, its arrears included a £10.4 million outstanding balance owed by caravan company RoyaleLife.
RoyaleLife, which has been a customer of the bank since 2018, went into administration in October. At the time, Distribution Finance believed it would be repaid once RoyaleLife’s refinancing was complete.
However, Distribution Finance was since made aware that ‘RoyaleLife’s financial situation and operation is much opaquer and more complex than originally determined’. This, it said, is adversely impacting secured lenders and creditors to a greater extent than previously anticipated.
Distribution Finance said it will continue pursuing recovery of the outstanding debt ‘to the fullest extent possible’. However, it warned that ‘there is no certainty at this stage...that [RoyaleLife’s refinancing] will lead to a satisfactory outcome and successful refinance, which will see the group being substantively repaid.’
Chief Executive Carl D’Ammassa commented: ‘Despite our best efforts, it is very disappointing that we have not been able to resolve the RoyaleLife situation.
‘This is a complex, demanding and unique exposure that we have been working through over many months...we continue to seek recovery, but feel prudency and transparency of approach is critical at this time and central to our model.’
Distribution Finance however noted its ‘expectations of further loan book growth’, adding that in the medium term it ‘will remain flexible and pragmatic in the pursuit of its growth strategy’.
‘Notwithstanding [the RoyaleLife] situation, the group is seeing strong underlying financial momentum,’ D’Ammassa said, ‘and we remain well placed to build a diverse multi-product lending proposition, without the pressing need to raise Tier 1 capital through an equity raise.’
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