goeasy Ltd. Provides Update on Federal Budget and Announces New Funding Capacity
MISSISSAUGA, Ontario, March 28, 2023 (GLOBE NEWSWIRE) — goeasy Ltd. (TSX: GSY), (“goeasy” or the “Company”), one of Canada’s leading non-prime consumer lenders, has provided an update regarding the Government of Canada’s intent to change the maximum allowable rate of interest outlined within the Federal Budget presented on March 28, 2023, and an update on recent enhancements that increase its sources of funding capacity.
Update on the Federal Budget
On March 28, 2023, the Federal Government announced its plan to reduce the maximum allowable rate of interest to an annual percentage rate of 35% (APR), prior to releasing the results of the recent Department of Finance consultation.
Consequences for Canadian Consumers – goeasy has been actively engaged in the Federal Government consultation process, both directly and in partnership with the Canadian Lenders Association (CLA), providing clear evidence that a reduction to the maximum allowable rate of interest would have significant unintended negative consequences for both Canadian consumers and small and medium-sized businesses. The current interest rate framework has enabled lenders to responsibly serve over 8 million non-prime Canadian consumers for over 40 years, providing fair and equal access to credit, and a path to rebuild their credit profile. A reduction in the maximum allowable rate, will eliminate access to credit for millions of borrowers, forcing them to turn to more expensive sources of borrowing, such as payday loans or illegal loan sources. Everyday Canadian families, including newcomers, rely on non-prime credit for expenses such as buying or repairing a car, paying unexpected bills, or consolidating debt. Reducing access to this credit remedy not only eliminates a critical source of funds for the needs of these families, but it also eliminates a key resource that helps rebuild their credit and provides them with a path back to a lower cost of borrowing in the future. Additionally, restricting access to credit for Canadians during a period of economic uncertainty, could not come at a worse time given the challenges Canadians are facing with their cost-of-living.
Impact to goeasy – The Company expects that it will continue to produce an annual increase in its adjusted diluted earnings per share going forward, despite a reduction to the maximum allowable rate of interest to 35%. This change may seriously impact the operations of other lenders within the industry who operate at higher average interest rates, or have less scale, thereby reducing competition and driving more business to those with operating leverage such as goeasy. goeasy has been on a multi-year journey to reduce the weighted average annual interest rate for its customers by providing credit at their time of need and then graduating them to progressively lower rates of interest over time. Since its inception, the weighted average annual interest rate the Company charges its customers has decreased from approximately 45% to 30%, with its loan products starting at rates as low as 9.9%, demonstrating that a competitive marketplace is already producing benefits for Canadian consumers. Furthermore, the Company’s existing strategy was to continuously reduce the weighted average interest rate charged to its borrowers going forward. By widening its range of products and rates, the Company has been able to attract more near-prime consumers and extend the life of its customer relationships, providing a path for consumers to receive a lower interest rate in reward for positive payment behavior. This strategy has enabled the organization to scale to nearly $3 billion in consumer loans, while serving over 1.3 million Canadians. As such, the Company believes it is well positioned to adapt to a potential change in the maximum allowable rate of interest, by accelerating its existing business strategy. The Company further notes the following:
- As of February 28, 2023, the weighted average interest rate on the Company’s consumer loan portfolio is approximately 30% per annum, and the weighted average interest rate of its new loan originations is also approximately 30% per annum.
- Only 36% of the Company’s consumer loan portfolio carries a rate of interest greater than 35% per annum, of which the weighted average annual interest rate on those loans is 42.5% per annum. If this portion of the portfolio were to be immediately reduced to the newly proposed maximum allowable rate of 35% per annum, the weighted average interest rate on the total portfolio would reduce by approximately 270 basis points. However, as is customary with new legislation, the changes would occur on a prospective basis, thereby having a gradual effect on the Company’s weighted average interest rate over multiple years.
- In the province of Quebec, the Company has been offering loans at a maximum rate of interest of 35% per annum, to comply with existing provincial licensing requirements, since 2017, and this portfolio produces a return on equity greater than 20% per annum.
As highlighted in previous disclosures, the Company continues to pursue a long-term strategy that includes expanding its product range, developing its channels of distribution, and leveraging risk-based pricing to reduce the cost of borrowing for its consumers and extend the life of its customer relationships. As such, the impact to the business of a change to the maximum allowable rate of annual interest will moderate relative to its previous guidance over time. Although, as noted above, the Company expects to see continued positive growth in its adjusted diluted earnings per share year-over-year, the Company is in the process of evaluating the extent of the impact of the reduction in the maximum allowable rate on the commercial forecast provided in the Company’s fourth quarter results released on February 15th, 2023, and intends to provide revisions to that commercial forecast in conjunction with when it announces its first quarter earnings results in May 2023.
Funding & Liquidity Enhancements
The Company is pleased to announce that it has recently exercised the accordion feature of its existing senior secured revolving credit facility (the “Credit Facility”) to increase the maximum amount available under the Credit Facility by $100 million to $370 million, while maintaining the current interest rate payable on advances. The Credit Facility continues to be underwritten by Bank of Montreal, Royal Bank of Canada, Wells Fargo Bank, CIBC, National Bank of Canada and Toronto-Dominion Bank.
In addition, the Company is pleased to announce it has received approval from a leading Canadian insurance company for $150 million of additional financing, which will be collateralized by consumer loans originated by goeasy’s wholly owned subsidiary, LendCare Capital Inc.
These enhancements complement the Company’s existing $1.6 billion revolving securitization warehouse facilities, and will be used for general corporate purposes, including funding growth of the consumer loan portfolio, further extending the liquidity of the Company. The Company also remains confident that the capacity available under its existing funding facilities, and its ability to raise additional debt financing, is sufficient to fund its organic growth forecast.
This press release includes forward-looking statements about goeasy, including, but not limited to, its business operations, strategy and expected financial performance and condition. Forward-looking statements include, but are not limited to, statements with respect to the anticipated impact of the Federal Budget as well as the anticipated impact of the liquidity enhancements described above. In certain cases, forward-looking statements that are predictive in nature, depend upon or refer to future events or conditions, and/or can be identified by the use of words such as “expect”, “continue”, “anticipate”, “intend”, “aim”, “plan”, “believe”, “budget”, “estimate”, “forecast”, “foresee”, “target” or negative versions thereof and similar expressions, and/or state that certain actions, events or results “may”, “could”, “would”, “might” or “will” be taken, occur or be achieved.
Forward-looking statements are based on certain factors and assumptions, including expected growth, results of operations and business prospects and are inherently subject to, among other things, risks, uncertainties and assumptions about the Company’s operations, economic factors and the industry generally. There can be no assurance that forward-looking statements will prove to be accurate as actual results and future events could differ materially from those expressed or implied by forward-looking statements made by the Company. Some important factors that could cause actual results to differ materially from those expressed in the forward-looking statements include, but are not limited to, goeasy’s ability to enter into new lease and/or financing agreements, collect on existing lease and/or financing agreements, open new locations on favourable terms, offer products which appeal to customers at a competitive rate, respond to changes in legislation, react to uncertainties related to regulatory action, raise capital under favourable terms, compete, manage the impact of litigation (including shareholder litigation), control costs at all levels of the organization and maintain and enhance the system of internal controls.
The Company cautions that the foregoing list is not exhaustive. These and other factors could cause actual results to differ materially from our expectations expressed in the forward-looking statements, and further details and descriptions of these and other factors are disclosed in the Company’s Management’s Discussion and Analysis (“MD&A”), including under the section entitled “Risk Factors”. The reader is cautioned to consider these, and other factors carefully and not to place undue reliance on forward-looking statements, which may not be appropriate for other purposes. The Company is under no obligation (and expressly disclaims any such obligation) to update or alter the forward-looking statements whether as a result of new information, future events or otherwise, unless required by law.
goeasy Ltd. is a Canadian company, headquartered in Mississauga, Ontario, that provides non-prime leasing and lending services through its easyhome, easyfinancial and LendCare brands. Supported by more than 2,400 employees, the Company offers a wide variety of financial products and services including unsecured and secured instalment loans, merchant financing through a variety of verticals and lease-to-own merchandise. Customers can transact seamlessly through an omnichannel model that includes online and mobile platforms, over 400 locations across Canada, and point-of-sale financing offered in the retail, powersports, automotive, home improvement and healthcare verticals, through approximately 6,500 merchant partners across Canada. Throughout the Company’s history, it has acquired and organically served approximately 1.3 million Canadians and originated approximately $10.1 billion in loans.
Accredited by the Better Business Bureau, goeasy is the proud recipient of several awards in recognition of its exceptional culture and continued business growth including Waterstone Canada’s Most Admired Corporate Cultures, ranking on the 2022 Report on Business Women Lead Here executive gender diversity benchmark, placing on the Report on Business ranking of Canada’s Top Growing Companies, ranking on the TSX30, Greater Toronto Top Employers Award and has been certified as a Great Place to Work®. The Company is represented by a diverse group of team members from 78 nationalities who believe strongly in giving back to communities in which it operates. To date, goeasy has raised and donated over $4.8 million to support its long-standing partnerships with BGC Canada, Habitat for Humanity and many other local charities.
goeasy Ltd.’s. common shares are listed on the TSX under the trading symbol “GSY”. goeasy is rated BB- with a stable trend from S&P and Ba3 with a stable trend from Moody’s. Visit www.goeasy.com.
For further information contact:
President & Chief Executive Officer
Farhan Ali Khan
Senior Vice President, Chief Corporate Development Officer