CURO Declares Chapter 11

CURO Group Holdings Corp., a publicly traded consumer lender, has entered Chapter 11 bankruptcy proceedings. This form of bankruptcy involves the reorganization of a debtor’s business affairs, debts, and assets. 

The Company is an omni-channel consumer finance company founded more than 25 years ago to meet the growing needs of consumers looking for convenient and accessible financial and loan services. The Company designs its customer experience to allow consumers to apply for, update and manage their loans in the channels they prefer—in branch, via mobile device or over the phone.

The Company currently operates store locations across 13 U.S. states and eight Canadian provinces (with additional services available online in eight Canadian provinces and one territory) and employs approximately 2,856 employees in the U.S. and Canada.

CURO Group Holdings Corp.’s decision to declare bankruptcy under Chapter 11 is deeply rooted in several strategic and financial challenges it faced despite its efforts to transform and adapt to a changing economic landscape. Here’s an analysis of the key reasons behind this decision:

1. Strategic Transformation and Operational Efficiencies: CURO undertook significant efforts to improve operational efficiencies and shift its business model towards longer-term, higher-balance, and lower-interest-rate credit products. This shift was aimed at reducing regulatory and reputational risks. However, transforming a business model involves significant costs and risks, especially when moving away from established, albeit higher-risk, financial products.

2. Acquisitions and Divestitures: CURO completed acquisitions and sold its legacy high-risk business lines as part of its strategic shift. While such moves are intended to streamline operations and focus on core, more sustainable activities, they also involve substantial financial outlays and can lead to short-term liquidity pressures.

3. Liquidity Challenges: CURO faced liquidity challenges exacerbated by unsuccessful refinancing efforts. Potential refinancing lenders viewed the company’s corporate balance sheet as over-leveraged, making it difficult to secure new financing on favorable terms. These liquidity challenges were critical, as they directly impacted CURO’s ability to meet its operational needs and financial obligations.

4. Failure to Meet Forecasted Cash Levels: The company’s liquidity is strained by its failure to meet forecasted cash levels following the dispositions of less desirable business lines. Such financial discrepancies can quickly escalate into crisis levels for companies operating in the high-stakes financial services sector, where cash flow predictability is crucial.

5. Deleveraging and Securitization Facilities: CURO’s bankruptcy filing aims to significantly deleverage its corporate balance sheet and extend its Securitization Facilities, which are vital for its ongoing operations. The inability to refinance these facilities on time highlighted the urgent need for a comprehensive restructuring.

6. Plan for Reorganization: The bankruptcy plan involves significantly restructuring CURO’s debt, including reinstating certain senior prepetition debt and an equitization transaction in which lenders become equity holders. Such a plan requires the protection and framework provided by Chapter 11 proceedings to ensure legal and financial restructuring occurs in an orderly and court-supervised manner.

7. Minimizing Disruptions: By allowing all general unsecured creditors to recover fully, CURO aims to minimize disruptions to its operations. The Chapter 11 process provides a structured pathway for the company to transform its balance sheet while continuing to operate and serve its customers, which would be more challenging outside bankruptcy protection.

In summary, CURO’s decision to enter Chapter 11 bankruptcy proceedings is a strategic move to address its over-leveraged balance sheet, liquidity challenges, and operational restructuring. The company aims to emerge from bankruptcy with a deleveraged balance sheet and sufficient liquidity to support its long-term viability, leveraging the legal and financial framework provided by Chapter 11 to restructure its debts and operations orderly. This approach reflects CURO’s belief in its underlying business model and its commitment to continuing to serve its customer base with high-quality financial services.

Overview of the Situation:

CURO Group Holdings Corp. (CURO) is a company that provides loans to consumers. Recently, it decided to file for Chapter 11 bankruptcy. This doesn’t mean the company is shutting down; instead, it’s restructuring its finances to reduce debt and improve its financial standing.

What is Chapter 11 Bankruptcy?

Chapter 11 is a chapter of the Bankruptcy Code that allows businesses to reorganize their debts. It’s often referred to as “reorganization” bankruptcy. Unlike Chapter 7, where a business must liquidate its assets to pay creditors, Chapter 11 allows the company to restructure its debts and try to become profitable again.

Key Points from CURO’s Press Release:

1. Restructuring Support Agreement (RSA): CURO entered into an agreement supported by many of its lenders. This agreement is a plan to restructure the company’s debt, including loans and notes (a type of debt security).

2. Voluntary Chapter 11 Reorganization: CURO filed for Chapter 11 to implement its financial restructuring plan. This is a strategic move to manage its debts more effectively.

3. Debt Reduction: The restructuring plan aims to reduce CURO’s debt by about $1 billion. This reduction will save the company around $75 million annually in interest payments, which can be used for long-term growth investments.

4. Business Operations Continue: Despite the bankruptcy filing, all CURO branches remain open, and their operations are unaffected. This means customers can still use CURO’s services without interruption.

5. Debtor-in-Possession Financing: CURO has secured $70 million in new financing from its stakeholders to keep the company operating smoothly during bankruptcy. This type of financing is unique because it’s given priority over existing debt, ensuring the company has the funds it needs to continue operations.

6. Support from Creditors: CURO’s lenders have broad support for the restructuring plan, indicating that they believe in the company’s ability to reorganize and emerge stronger.