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Keep in mind that the debt is not just the retail bond. There's also £381m of secured debt held by banks. I agree that the bond can *currently* be repaid by liquidating the portfolio, but problems obviously emerge if property prices were to crash or if assets were sold at firesale prices..

£430m is a serious pile of debt for a company of this size!

@404x: We're both just offering opinions. Opinions can be wrong, but it's simply not true that there's 'no way they'll be able to refinance the bond'. Anything is posssible. It just depends on the price. If the NAV was negative, I'd agree that it's very unlikely they'd be able to refinance themselves, but this is not the case here. You can't read anything from the RGL1 prices re: market sentiment; there's insufficient liquidity. FYI: That's very typical of large parts of the bond market that don't trade on the exchange (i.e. most of the bond market...).

Keep in mind that the dividend on the common shares is ~£25m. If it was really desperate (I don't think it is), they'd liquidate/auction properties and the dividend will then reduce proportionally, i.e. RGL would deflate like a balloon, without risking the REIT status. I think they still have plenty of options.

@404x: "The only alternative I can see is default followed by administration."

Why? They have cash on hand, a significant, diversified rent roll and the ability to do an equity raise. The secured debt maturities are >2 years away and the interest rates are quite low/fixed at 3.5%. I think the bankers will come up with something creative, like a 3-5y ZDP and be rid of the bond coupon cost. Unless property prices drop really significantly, there's still plenty of wiggle room.

Anything is possible, but I don't see administration as likely at this point.

The MTM changes in the bond price have no impact whatsoever on the final payout - unlike equity. I'll continue to hold the Retail Bond so long as there's no deterioration in their credit situation. I don't see anything so far; just zero illiquidity. I'm currently happy to wait, but I fully expect there to be an equity raise and/or a cut to the equity dividend, both of which I would welcome.

The problem with the retail bond is that there's almost zero liquidity. Actually, the BUY price is higher today than yesterday... it's just that they're massively illiquid. You can see that if you do a dummy buy. It's just that the spread has widened.

The Retail Bond is indeed secured against nothing, but it stands ahead of the equity. Even with a firesale, there should be a big enough buffer for the retail bond to be repaid. It's a simple calculation. Obviously if the assets were sold at a MASSIVE discount to NAV (e.g. 50%), the bond will also be in trouble and equity will be entirely wiped out, but I don't think we're at that scenario. The banks would take only a relatively minor haircut even with sales at 50% of NAV.

"Phoenix's Standard Life completes 114 mln stg bulk annuity for Vector Pension"

Loads of good news coming through for this company. I'm hoping for a divi increase at results time.

I doubt they'll have a meaningful impact on the debt through an equity raise alone. With the market cap at just £103m, they'd have to double the number of shares in issue, just to eliminate *less than* 25% of the debt. The remaining debt would still be very high. The best way out of this mess is to try and roll the retail bond, but simultaneously sell properties. They need significant selling. That's going to erode the dividend, but that's the situation they're in. There's still *currently* plenty of wiggle room to get out of this, but they need to get moving and sell more properties.

It's interesting that BCPT had to sell an office at a 6% discount to the Dec 2023 prices. And they consider 'regional out of town offices, is a structurally challenged sector of the market'.

With the retail bond trading at 86.45 and another 2.25% coupon due in Aug, that's an 18% return in 6m. Fingers crossed they'll repay the principal as well. I still don't see any risk to the bond unless prices drop substantially from here.

If I hold what I believe is a good asset/stock/trust, but the market disagrees with me and keeps tanking, I tend to respect what the market is saying and exit in order to protect my capital. That means that many times I'll regret having exited, because it often bounces back the moment that I sell. But that's the nature of risk-management... I'm at that point again now. I add to winners, not losers. There is always the chance to buy the asset back again - that is the advantage that a small investor has over large investors who *cannot* buy/sell so quickly.

Glad that I didn't topup...

I think they'll be able to issue a new bond or a 3-5 year ZDP to repay the existing retail bond. Or maybe they could use a combination of cash and a smaller bond/ZDP to please the market. Defaulting on the retail bond would be the end of the company, so it's not going to happen.

But the only way (that I can see) to reduce the LTV is property sales which will reduce the dividend proportionally. The only way they'll avoid that is if property prices start rising again. Another option is an equity raise or a combination of all of the options listed.

Good on you Porchy - you genius! Earnings look solid; business transformation delivered early. Granted, the UK market is pis* weak as ever, but an offer will be on the cards; loads of players want to get a slice of the UK market. I'd love to see your face when your short goes from a few pence up to NOT up any longer; meanwhile, you're paying 10+% per year to keep it open. He he, what a genius.

As far as I know there 's not a single covenant of 60%.

RGL has debt with several lenders, who have lent money based on different properties. For example, Santander originally lent money against 19 properties to a subsidiary called Toscafund Glasgow Limited. That covenant says:

"the loan to value must be not more than 60 per cent. until the fifth anniversary of the amended facility being signed and 50 per cent. thereafter."

The date of the amendment was 18 June 2019, so it appears that this LTV covenant drops to 50% in June this year. We don't know what the current LTV is for that portfolio of properties, just the LTV of the overall portfolio. Clearly there could be an issue if property values were to fall between now and June.

FYI: this info is contained in the prospectus for the Capital Raise in July 2019 on the RGL website. I haven't found a more recent version.

FYI 2: Some properties have been sold since then. Perhaps the company has received updated documentation which improves the situation.

DYOR.

In really simple terms. Assuming they have zero cash/zero rent roll:

Gross Portfolio Value (2 Feb 2024): 700.7m

Gross Debt: 431.693m

Net: 269m

==> they can still repay all the debt by liquidating everything - as long as property prices do not fall by more than ~38%. That's a fair bit of breathing space and that's the worst outcome.

There are no secured debt maturities until Aug 2026, so they also have breathing space as long as they don't breach lending covenants and those aren't going to happen all at once. In reality, they *do* have cash on hand, they have a significant rent roll and the interest rate is fixed at 3.5%, which is pretty low.

In summary: As a holder of the retail bond, I'm not shi*ting my pants yet. I think the collapse of the retail bond price is just a sign of poor liquidity. I'm not currently buying any more, but I might consider it once we get closer to maturity, depending on the FY results in March.

Maybe it makes sense for them to start buying back the retail bond?

FYI: that debt figure is a bit old. DYOR as I could be 100% WRONG.

On the other hand, it's not going to surprise me if they've breached one of the covenants (most probably the one with Santander). I really doubt that they're going to be Mr Nice Guy if that happens; I reckon they'll force a liquidation of those properties before they drop any more. They will not give a monkey's about the pain inflicted on equity holders; that's not even going to factored into the thinking.

The divi (~£6m/quarter) dwarfs the retail bond coupon (£1.125m).

In the normal scheme of things, the divi would be cut/eliminated if there was any chance of the bond coupon being missed or principal not being repaid. I don't think there's any problem with that coupon. In the event of a firesale, I still think they can repay the secured lenders and the retail bond. Obviously the equity holders might be wiped out in such a firesale, but I don't think we're at that stage yet. On the other hand, it depends whether or not the banks want to lighten their exposure to CRE.

Big volumes of the retail bond being offloaded (actually, it's just 5 sales as of 9am, but there's no liquidity). Somebody wants out in a hurry.

On the other hand, it's suspicious that somebody wants out of this so quickly, given that it matures in only 6m time. I guess they think they're not going to get repaid. It looks like a bargain, but I'll be keeping my exposure below 1%.

The bond price has collapsed today... sp = 87.7 currently, giving an annualised yield of over 30%, that's a 10% rise o/n... it could just be the extreme illiquidity or that somebody knows something. I don't see them defaulting on the bond as it would surely kill the company. I welcome other views!

Yield on retail bond now over 20% (sp: 92.436). Clearly somebody thinks there's a sizable risk of default.