VANCOUVER — A Canadian fintech company that attracted millions of dollars from investors and said it had begun preparing for an initial public offering has filed for creditor-protection proceedings, instead.
Vancouver-based Progressa, an alternative lender, filed under the Companies’ Creditors Arrangement Act in late September, with court documents showing it owed tens of millions and required an immediate infusion of money.
Later this week, some of the company’s creditors will vote on a plan that would see them receive at least some of what they’re owed and the company continue under new ownership. However, not everyone likes the proposal, which would see another entity linked to the current chief executive officer become Progressa’s sole shareholder. Some argue it may not be the best option and has the tinge of at least a perceived conflict of interest, with some of them asking the court to postpone the meeting.
Progressa, a Vancouver-based company that lent money to borrowers snubbed by more traditional sources, filed for creditor protection in late September. It owed tens of millions of dollars, including about $625,000 coming due the next day that it did “not have sufficient liquidity” to pay. It has filed a restructuring plan and on December 3, its unsecured creditors and bondholders will vote on whether to approve the sale or send Progressa back to the drawing board. But some say the proposed plan is not the best option for many of Progressa’s creditors and that the process is tainted with a perceived, if not real, conflict of interest, and want the court to postpone the meeting.
“There’s tons of perceived conflict of interest all around this, and then there’s very little transparency,” said Alex Conconi, founding partner of Vancouver-based Conconi Growth Partners. The family investment office was an early Progressa investor and now stands to lose hundreds of thousands of dollars, he said. Conconi knows startups are risky. He’s not upset about losing money, but about what he called a lack of transparency around financials and the restructuring plan. “As an angel investor, we are prepared to lose money for the right reasons. We just want transparency, that’s all.” (Conconi is also CEO and co-founder of LenDesk, which provided services to Progressa. Progressa considered it “a critical supplier” and it was entangled in the court proceedings over continuing to provide services and owed payments.)
Founded in 2013, Progressa (officially Creditloans Canada Financing Inc.)— and Capital Inc., a second company created to issue bonds to fund Progressa’s consumer loans—filed for creditor protection in the Supreme Court of British Columbia on September 29. Progressa’s CEO and CFO did not respond to The Logic’s request for comment. Suzie Williams, a spokesperson for the law firm representing the two companies, said in a statement to The Logic that as the inquiry “pertains to an active client matter we are not in a position to provide input.” The companies require relief sought through the court “on an urgent basis,” according to court documents and without immediate capital “Progressa will not be able to preserve its business.”
Progressa extends loans to borrowers snubbed by other lenders. The company’s system gauges the credit-worthiness of applicants by looking at factors other lenders sometimes ignore, like employment history and earning potential. It offers successful applicants between $1,000 and $15,000 to be repaid over six and 60 months at between 19 and 46.95 annual percentage rates. In some cases, the money doesn’t go to the customer, though, with Progressa instead using it to pay off a customer’s debt or bill directly. That’s supposed to help the customer’s credit score rise immediately, and over time while they repay Progressa.
Progressa raised money to fund the loans in two ways. It incorporated Capital (officially Creditloans Canada Capital Inc.) in April 2014 to issue bonds. Capital advanced the bond proceeds to Progressa, which used the money partially to fund loans. Starting in 2016, Progressa also entered into loan purchase agreements with funders. It bundles loans and sells them or uses them as collateral for capital from these funders. Progressa makes money through a combination of funds advanced by these funders, service fees paid by some funders, and some loan interest and payments beyond what’s owed to funders.
The company grew into a magnet for borrowers and investors. In March 2019, it surpassed $100 million in funded loans. It raised a total of $17.5 million from investors, according to PitchBook. Its 2018 round raised $84 million in equity and loan funding. It said “the equity financing was largely supported by the Canadian investment banks” who saw potential for an IPO before 2020. According to PitchBook, investors from previous rounds include Conconi and Cypress Hill Partners, as well as $6.1 million from undisclosed angel investors in its first seed round.
Before the beginning of the North American spread of COVID-19 in the first quarter of this year, Progressa was “approaching the break-even point on operational activities,” according to court documents.
Things changed with the pandemic. The number of people applying for new loans dropped. Progressa’s revenue fell as a result.
It had previously used funds raised from equity financing as leverage with the funders to lower the cost of capital. The pandemic also eliminated that possibility. “Progressa is unable to complete further equity financing,” court documents read, and the cost of capital under its loan purchase agreements “remains prohibitive to Progressa’s long-term viability.” Conconi said he and other investors were not asked to contribute more capital.
Progressa did not see a way out of its financial bind. “Without access to immediate interim financing, [Progressa and Capital] will be unable to meet their liabilities as they come due and Progressa will be unable to continue its operations and preserve its assets,” court documents read. The day after it filed for creditor protection, bonds with about $625,000 outstanding were set to mature, which Progressa lacked “sufficient liquidity” to repay Capital. services.
At the time, Progressa owed tens of millions of dollars. That included about $798,000 “owed arrears” to two entities under loan purchase agreements; about $8.5 million to its main secured creditor under two promissory notes; about $9.4 million to Capital for the proceeds of bonds; and about $1.7 million to unsecured creditors. Nathan Slee, Progressa’s CEO, is the principal of the main secured creditor, ACF Financial Partnership.
The court granted the initial order in September, and Progressa filed its proposed restructuring plan in mid-November. It would see ACF Financial G.P. Ltd. or its nominee become Progressa’s sole shareholder. Slee, who took over as CEO in September 2019 after co-founder Ali Pourdad resigned, is the sole director of the proposed buyer.
Under the plan, secured creditors would be paid out over the normal course of business or as negotiated between the companies. The unsecured creditors, who are owed a total of about $1.7 million, will receive a portion of a $250,000 pot. Bondholders can decide whether to be paid out 35 cents on the dollar, or the full amount they’re owed over five years.
The connection between Slee and the proposed buyer has raised some eyebrows. “Clearly, Nathan sees opportunity here, and has since he got involved,” said Conconi. Yet, “there’s been no market test” to see if this is the best deal for all creditors, he said. There was no formal sales- and investment-solicitation process, the court-appointed monitor noted, adding that no formal offers materialized before or after the CCAA filing as of November 13. “The monitor cannot say with absolute certainty that restructuring transactions contemplated under the plan and acquisition agreement (as currently drafted) represent the best possible exit from these CCAA proceedings,” it said, but affected creditors should be informed of the current plan and given the opportunity to vote.
LM Credit, a Mississauga, Ont.-based company that offers a similar service to Progressa, attempted to present “a superior arrangement,” it said in an email to bondholders, obtained by The Logic. In an attached letter dated November 19, it highlighted its independence from Progressa and its management, and said it believed the bondholders’ should be paid ahead of an “existing priority” on money owed to ACF. “The transaction was non-arm’s length,” it said. Conconi confirmed investors did not vote on approving the ACF financing arrangement, despite signing consents for some previous major financings. LM Credit’s president and CEO Alexander Yusuf, who sent the email, did not respond to a request for comment. (The court-appointed monitor found that ACF acted “at arm’s length” from the two companies at all times and “is of the view that there is no apparent basis on which to challenge the validity and enforceability of ACF’s secured claim.)
Those entities with something to lose—the bondholders and unsecured creditors—will be the ones to determine Progressa’s future. On December 3, they’ll cast a vote on the plan, either approving it—at which point the court must still sanction it—or sending Progressa back to the drawing board.
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David Hardy, a bondholder who invested $150,000, wants the court to adjourn the planned meeting for two weeks so that the monitor, and Progressa and Capital, can consider LM’s revised offer, which “provides a better return for the stakeholders, including the bondholders,” according to an application that lawyers plans to file in court Wednesday.
The court-appointed monitor said in its latest report that it “is not supportive of the offer from LM credit” and does not believe it is appropriate to adjourn the meeting as LM also requested. It recommends the creditors vote for the available plan.