Rent-to-own and cash loan chain Brighthouse collapses

Rent-to-own high street chain and cash lender BrightHouse has gone into administration putting 2,400 jobs at risk as attempts to turnaround the business failed following impact of tougher FCA rules as a result of the high cost credit review

Chris Laverty, Trevor O’Sullivan and Helen Dale of Grant Thornton UK LLP were appointed on 30 March as joint administrators of parent company Caversham Finance Ltd (CFL), which is the holding company for Brighthouse, the buy to own hire purchase and cash loans business.

CFL trades as BrightHouse in the UK and runs a chain of high street shops based on a cash loan business and a rent-to-own model for appliances from fridges to TVs, based on finance rental agreements which when paid off result in ownership, often over long periods of time with many customers paying weekly cash payments with APR interest rates of 69.9%.

In the Q2 2019/20 unaudited results, BrightHouse warned investors that the company was growing liabilities due to a high volume of customer complaints over excessive interest charges on cash loans and repayment interest rates.

Brighthouse stated: ‘We have increased the affordability provision by £5.6m as a result of an increase in the number of complaints received and we have disclosed a contingent liability in respect of our affordability provision’.

The company also reported a substantial bad loan book of £8.9m (Q2 2018/19: £8.9m) and stated that ‘the recovery of cost of bad debt after the Q1 2019/20 results [was] impacted by 30 store closures and the retail reorganisations in March 2019’.

It had been hit by measures brought in by the Financial Conduct Authority (FCA) high-cost credit review https://www.accountancydaily.co/fca-consults-major-overhaul-overdraft-market to reduce excessive interest rates. The company said this had resulted in an 8-10% cut in product prices year on year.

Year end March 2019, the company reported a loss of £49.6m against a profit before taxation of £6.65m for year end March 2018.

Pressure from a mix of the tougher FCA regulated environment for cash loans, Brexit impact and the final onslaught of covid-19 store closures, forced the company into administration.

Customer numbers were also dropping as the high street model was no longer working.

Over the past two years, the customer base had also fallen from 215,500 in Q2 2017/18 to 180,700 in Q2 2019/20. This resulted in a decline in the rent-to-own business from £370.9m in Q2 2018/19 to £283.9m in Q2 2019/20.

After it moved into the cash loan business in Q4 2018/19, this segment grew substantially from £1.8m in Q4 2018/19 to £23.8m in Q2 2019/20 but it was under pressure to meet FCA rules on fairer loan interest rates.

The company also reported an EBITDA loss (pre-exceptionals) of £3.2m (Q2 2018/19: loss of £1.0m), while it was accessing a £35m facility from the revolving credit facility (RCF) with Greensill which had a covenant ratio of 1.10, above the requirement of 1.00.

It was hit by IFRS 16 Lease accounting changes, which resulted in adjustments to the balance sheet resulting in a £2.8m increase in depreciation, £0.7m increase in interest costs, which it said were ‘offset by a £3.4m reduction in operating costs’.

It also brought in a new interim CEO, South African trained chartered accountant, Alan Gullan in February of this year, in a bid to turn around the company. He was previously chief risk officer at UK law firm Slater and Gordon and holds a number of directorships including for Kent based Finsbury Investments. He was non executive director at the Institute for Turnaround from 2014 to 2015.

His predecessor was CEO, Anth Mooney, who was appointed in September 2019, but left the company after only six months in post. Before he joined Brighthouse Monney was managing director of Thomas Cook Finance, and previuoshy director of financial services at Virgin Money. He is currently CEO at Belmont Green Finance.

At the time, Gullan said: ‘Although BrightHouse presently faces significant challenges, the company is uniquely positioned to be a responsible regulated lender. It is well-placed in its market and its valuable assets include long-standing, committed and knowledgeable employees, a loyal customer base, substantial physical infrastructure and a sound relationship with the FCA.

‘My principal challenges are to, first, protect and, second, rebuild the value in the business.’

The company was audited by Deloitte LLP for year end 31 March 2019.

Caversham Insurance Limited is authorised by the Gibraltar Financial Services Commission and subject to limited regulation by the Financial Conduct Authority and Prudential Regulation Authority.

BrightHouse was forced to shut all its shops following the government’s covid-19 announcement which saw wider lockdown measures introduced last Friday and the closure of all non-essential shops on 23 March.

The joint administrators said they ‘will explore options to increase the value for creditors including an orderly wind down of the businesses’ over time and sale of the assets’.

They have already started the process of identifying all creditors and providing creditors with information as to the potential for recovery of debts.

There will be no new rent-to-own or cash loan lending activity for the time being, but current customers have been told they must continue to make payments ‘in the usual way according to the company’s terms and conditions, and all payment channels (except stores) remain open at this point’.

Servicing, warranties and insurance claims will be provided by CTL until further notice, subject to covid-19 government guidelines. This will be kept under review by the joint administrators.

A statement on the BrightHouse website said: ‘The logistics and engineering business of Caversham Trading Limited will continue to assist in dealing with those customers who have claims for essential home item repairs and will continue deliveries of smaller items to customers’ doorsteps, to ensure where possible, customers products remain in working order.’

The customer service department remains open; complaints relating to affordability claims for previous agreements are being redirected to the administrators.

The BrightHouse website states that during the covid-19 pandemic, customers ‘will not be charged any late fees, interest on late payments or lose the use of your product during this difficult time’. Customer enquiries via the website, Contact Brighthouse online or tel 0800 526 069, press option 2.

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