June 13, 2014 4:52 am JST

Banks to keep Aiful's financial lifeline in place

Aiful was ordered to shutter branches, including this one in Tokyo, temporarily in May 2006.

TOKYO -- A group of banks will continue to support rebuilding efforts by Japanese consumer lender Aiful amid the prospect of its core operations recovering.

     The company will refinance the bulk of its 160 billion yen ($1.55 billion) in debt via loan refinancing, bond issuance and factoring. For roughly 50 billion yen not covered by these steps, it will ask to delay repayments by around five years.

     The two sides are expected to reach an official agreement as early as Friday.

     Aiful's earnings have been squeezed since the Supreme Court ruled in 2006 that consumers are entitled to refunds from nonbank moneylenders for interest overpayments. Refund requests surged after the ruling, with the company logging a 295.1 billion yen net loss for fiscal 2009.

     This is not the first time that Aiful has had to request a loan extension. In 2009, Aiful agreed under alternative dispute resolution to make repayments in installments for 80 billion yen of roughly 270 billion yen owed to 60 or so lenders. At the same time, it pushed back the repayment schedule for the remaining 190 billion yen.

     But that arrangement expires next month. Aiful has whittled down its debt to 160 billion yen at a pace faster than expected, which apparently helped persuade lenders to continue providing support.

     About 40% of the 160 billion yen will be refinanced via loans from such lenders as Sumitomo Mitsui Trust Bank and Aozora Bank. Aiful will issue around 30 billion yen in bonds at a coupon rate of 8% in exchange for debt. For 50 billion yen or so, the banks are expected to add five or so years to the repayment schedule.

     Aiful has downsized its staff of 10,000 by 80% over the past several years as part of a massive restructuring. But its overpayment refunds still stand at a high level of more than 30 billion yen a year.