$15M debenture issue will help Mogo expand its fintech loan book
Mogo Finance Technology Inc. has closed a $15 million round of financing intended to help fund growth in the fintech lender’s longterm loan book, with its largest shareholder and Dragons’ Den star Michael Wekerle and some of his fellow dragons among the buyers of the senior secured convertible debentures.
The debentures — which bear a 10 per cent interest rate — will also go toward satisfying the requirements of Mogo’s $250 million credit facilities with Fortress Credit Co. LLC, which help back its lending.
Mogo must fund between 20 to 25 per cent of each loan from its balance sheet, said Greg Feller, Mogo’s co-founder and chief financial officer.
“We’re really looking to get all our products starting to ramp up, and return our loan product to growth as well,” he said in an interview. "And in order to do that, we needed additional capital.”
The $15 million financing plus available funding via its credit facilities will enable Mogo to put out an additional $60 million in loan capital, he added.
Postmedia Network Inc., owner of the Financial Post, has a marketing and revenue sharing agreement with Mogo.
Wekerle and Difference Capital, the merchant bank he founded, acquired $6.25 million in aggregate principal amount of the debentures. Wekerle and Difference Capital already hold nearly 20 per cent of Mogo’s outstanding shares. Because of Wekerle’s significant stake, he is restricted from converting any debentures until Mogo obtains shareholder approval at a special meeting, expected in the third quarter of this year.
Other investors participating in the offer include his Dragons’ Den co-stars: Jim Treliving, owner of Boston Pizza International Inc.; Joe Mimran, founder of Club Monaco and Joe Fresh; Manjit Minhas, co-founder and co-owner of Minhas Breweries; and Michele Romanow, co-founder of Buytopia.ca, Mogo said.
The financing, which closed on June 6, was followed by two new analyst reports on the company.
Mogo was downgraded by Canaccord Genuity to hold from speculative buy on June 11. Analyst Kevin Wright said that Canaccord, which acted as an agent in the financing, believes that Mogo has been strong in 2017 and can show growth in 2018 but with “an implied -10 per cent return to our target” the fintech lender’s rating was cut.
“Given the uncertainty around new product growth, we view a one turn discount as appropriate as there is risk of our new business estimates proving optimistic,” Wright told clients in a note.
Mackie Research Capital Corp., however, said in a note on June 14 that Mogo’s stock does not yet reflect recent positives, including the $15 million debentures.
“Our conviction in Mogo’s organic revenue growth prospects has increased. We now have a higher degree of confidence in the company’s ability to grow loan book to ~$135 mln by the end of 2018 and approaching $200 mln in the 2019-2020,” analyst Nikhil Thadani said, rating the online lender at speculative buy.
BMO Capital Markets also downgraded Mogo in May.
Feller said that Canaccord was positive about Mogo’s prospects and strategy, but are making a short term call on valuation.
Feller said that Mogo is getting, on average, more than 45 per cent yield on its portfolio, and even with a 10 per cent rate on its debentures, it’s still accretive.
“Cost of capital ultimately is a function of a company’s size and profitability. And, you know, we are still at an earlier stage at our business. Which is why I would say our cost of capital, in this case, on the coupon is 10 per cent. As we continue to grow our loan book business and our new product, and scale the business, I think you’re going to see that cost of capital go down.”