Payday Lender DFC Withdraws $650 Million High-Yield Bond

DFC Global Corp., which runs Money Mart payday lenders, withdrew a $650 million sale of high-yield bonds denominated in Canadian dollars and British pounds as rising regulation squeezes revenue.

DFC, which operates under the name of Money Mart in most of Canada and Insta Cheques in Quebec, was planning to use the proceeds to refinance $600 million of 10.375 percent notes maturing in 2016. Prices of the 2016 bonds fell as much as 1 percent, while the company’s shares dropped 5.6 percent.

DFC’s revenues came under pressure last quarter as U.K. authorities moved to tighten regulations on unsecured consumer lenders, causing Standard & Poor’s to downgrade their credit rating. The company also posted revenue declines in the U.S. last quarter, where it is taking “corrective action” after authorities there inspected its retail outlets.

“That area gets more regulatory scrutiny and bad press,” Steve Michaels, a money manager at First Western Capital Management, which oversees $1.5 billion of assets, said by telephone from Los Angeles. “There are industries where there’s worry about ethics as well as regulatory pressure. I don’t know exactly why it failed there.”

The Berwyn, Pennsylvania-based company cited “market conditions” for pulling the sale and cash tender offer for the 2016 notes, according to statement.

Canadian Review

The company’s 10.375 percent debt due December 2016 dropped 81 cents on the dollar to $104.50 per $1,000 face value at 3:41 p.m. in New York trading, according to Trace, the bond-price reporting system of the Financial Industry Regulatory Authority. The securities yield 8.66 percent.

The shares fell 74 cents to $12.41 in Nasdaq trading. DFC has dropped 33 percent this year.

The only region to post revenue gains in the fiscal period ending Sept. 30 was the company’s second-biggest market, Canada, where the regulatory regime has been unchanged since a 2007 overhaul. Ontario, Canada’s most populous province, said in September it would review the maximum borrowing fee and the use of mobile applications to sell loans, and explore new ways to monitor the market.

Payday loans are most often taken out by low-income people willing to pay high interest rates to avoid falling behind on their bills or to cover emergency expenses, according to studies commissioned by the Canadian government and the Canadian Payday Loan Association.

Standard & Poor’s lowered DFC’s rating to B from B+ Nov. 15, citing increased U.K. regulation.

Before it's here, it's on the Bloomberg Terminal.