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Financials rally prompts Elevate to revive IPO plans

Elevate, one of the biggest subprime lenders in the US, is reviving plans to go public, seeking to cash in on a big lift in sentiment since the election victory of Donald Trump.

Financial stocks have rallied hard since November 8, with big banks such as Bank of America rising as much as 50 per cent on hopes of fatter lending margins, lower taxes and lighter regulation.

But smaller companies have been swept up too, particularly those that had been under close scrutiny by regulators including the Consumer Financial Protection Bureau. Factions within the Republican party have been pushing to neuter the agency, saying it has regularly overstepped boundaries since it was created by the Dodd-Frank Act of 2010.

That has created a more welcoming environment for Elevate, a specialist in providing loans online to people with patchy credit histories. It is aiming to raise about $100m to pay down expensive debt. Underwriters are aiming to price the deal next week, with trading beginning on Thursday.

“The environment has changed; Elizabeth Warren is not in power,” said one person familiar with the initial public offering, referring to the Democratic senator from Massachusetts who came up with the idea for the CFPB a decade ago.

“With Trump in office, it is non-prime time.”

The return of Elevate’s IPO comes as the US listings market is seeing signs of life after a weak period. Last year was the slowest for US IPOs since the aftermath of the financial crisis in 2009, but now the combination of high prices, low volatility and strong returns for IPOs is again enticing companies to sell shares.

“When markets are near all-time highs it is much easier to go public,” said Matthew Kennedy, an analyst at Renaissance Capital, which manages IPO-focused exchange traded funds.

Elevate, founded in 2014, deals primarily in instalment loans, which tend to be bigger, and have longer repayment periods, than the typical payday loan. However, they remain a very expensive form of credit. In the fourth quarter last year, Elevate’s combined loan portfolio — “Rise” and “Elastic” in the US, and “Sunny” in the UK — had an effective annual interest rate of 141 per cent.

The Fort Worth, Texas-based company tried to go public just over a year ago, but pulled the deal amid tough markets. At the time, Elevate was pitched as a technology company, seeking to ride some lingering positive sentiment for Lending Club and OnDeck, the online lenders which made their debut in December 2014.

Now, with both companies continuing to struggle, underwriters are repackaging Elevate as a finance company, in a peer group with subprime specialists such as Enova International, OneMain, First Cash, World Acceptance and EZCorp.

Shares in Enova are up about 59 per cent since Mr Trump’s victory, while OneMain has risen 48 per cent over the same period, shrugging off a 39 per cent drop on the eve of the election after weak third-quarter earnings.

Elevate is offering 7.7m shares at $12 to $14 each, it said in an updated filing this week. At the midpoint of that range it would raise about $115m, giving it an equity value of about $490m.

The company is backed by venture funds including Sequoia Capital and Technology Crossover Ventures.

UBS is leading the IPO, supported by Credit Suisse and Jefferies.

Via FT