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Two days ago Yellow Brick Road (ASX: YBR) claimed it was in exclusive negotiations with a big four bank for a $300 million credit facility, but the financial services group may have jumped the gun.
In a statement given to the Australian Stock Exchange (ASX) today, Yellow Brick Road advised negotiations with the major bank to beef up its loan business had terminated.
"The company now proposes to re-open negotiations with other major banks and financiers," YBR stated in the ASX lodgement.
"The Company emphasises the securitisation programme remains a priority goal for the Company in respect of which the establishment of a warehouse facility is the first major step."
YBR was negotiating to secure the new warehouse facility through an 'extensive market sounding process' over the past few months. with executive chairman Mark Bouris indicating the group had been building towards securitisation for "a number of years".
"In fact, it was always our intention to do so once we achieved a substantial distribution business, which we have via our YBR-branded shopfront franchisee business and Vow independent broker business," Bouris said in Monday's announcement.
"The power of this distribution, coupled with our own credit and funding capacity, will be formidable, and the timing could not be better given the present and foreseeable gaps in the market in certain categories of mortgage products and the renewed interest in the supply of money coming from the debt capital markets to fill these gaps."
The backtrack comes at a time when the financier is already under pressure with an unsolicited takeover offer from Mercantile OFM, a subsidiary of Mercantile Investment Company (ASX: MVT).
The cash price offer is for $0.09 per share, which Bouris has criticised for materially undervaluing the company. At the time of writing, YBR shares are trading at $0.10.
Regulatory changes impact results
Yellow Brick Road has also announced its financial results for FY18 this afternoon, marked by positive movement for revenue contrasting with a loss of $0.7 million. This compares to NPAT of $1 million in FY17.
Bouris said the loss was reflective of headwinds in the financial services sector caused by regulatory changes induced by the Australian Prudential Regulation Authority (APRA), as well as the context of the Royal Commission.
"However, I'm particularly pleased with the growth in revenue through our mortgage and wealth businesses, the improvement in cash earnings and our investments for the future," Bouris said.
As one of the leading non-bank financial services companies in Australia, YBR saw a 4 per cent increase in revenue to $230.7 million while EBITDA (excluding cash revenue) was up from just $0.1 million in FY17 to $1.8 million.
The group currently has a $47.6 billion underlying book of loans under management, and its wealth business has funds under management attributale to YBR of $1.05 billion.
"The fundamentals of the business are good. We have put in place the foundations for our mortgage and wealth businesses to grow strongly in coming years," Bouris said.
"A structural shift in the mortgage market means credit conditions imposed by banks have tightened. That's impacted on the 2018 profit but it also provides opportunities in the future."
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