Member Info for CaneToad

At the current buy price (120.333p), I make the yield on these to be ~10.8%

While not claiming to understand the intricate nature of the portfolio underlying EJF, these ZDPs seem to be 'relatively safe' if the the low gearing and fund history is anything to go on. I see they've hedged the portion of the portfolio required to repay the ZDPs in 2025.

Unless I'm mistaken, the gross portfolio value would have to decline by 75% or so, before the ZDPs were at risk.

At the current price of SDVP (buy: 119.40p), I make the yield of the ZDPs to be roughly 8.5%, with repayment still possible in full after more than a 50% in the equity portfolio. This looks like a decent punt. I'm less convinced about SDV itself except on a momentum basis.

"running yield of 4.824%" is not a useful figure for any comparison..... it's just the coupon dividend by the price. i.e. it ignores the main element of the yield, which is the capital gain. Running yield is not a useful figure to compare to other bonds.

If you calculate the 'yield' of this bond, it's around 16%.

"I do not believe that the 15% you are suggesting is remotely likely, particularly in the now almost certain environment of declining interest rates anticipated in 2024."

The yield on the retail bond is ALREADY > 15% .....

I cannot see they have any chance at all at a refi at 10%. Just look at the yields being achieved on any HY debt at the moment (e.g. within the SMIF, TFIF, CVCG, NCYF). Most are in the high teens - and that is for senior secured/leveraged loans. The RGL retail bond is *unsecured* - it has no assets at all set against it. There is just no way they can get that away for 10%. Even some of the AT1s with the big banks are close to 10%.

Of course, I do not want RGL to fail. I am a RGL bond holder..........

"nav must be about £3.10 so really cant get a safer more predictable investment than this."

But isn't the NAV for private investments? Isn't it just an opinion? It does look attractive, but it's a long way from being the 'safest and most predictable investment out there...'.

Anybody able to shed light on this loan facility which supposedly had been due to expire in Dec 2023...

I thought Franco presented well. The writeoff of CS and other bonds, without any major disaster to the fund shows the difficulty of credit analysis and the advantages of holding a diversified fund rather than picking out individual bonds yourself. The dividend history here is quite impressive and it's probably going to continue in my portfolio for the forseeable.

"Still High risk.Nothing has changed."

Absolutely my view. It will be interesting to see how much it costs to refi the bond. It has to be North of 15% as the yield on the existing one is already beyond that. There's no way they can achieve that sought of yield on offices. I expect they'll have to sell assets and clear the bond rather than refi. So this is likely to be a much smaller fund going forwards.

Any sane person ignores Porsche, because the guy is a small-time shorter that never offers anything worthwhile on fundamentals. He flutters around any board where there's a declining share price and the hint of a smell of something unpleasant blabbering the same thing every time - just look at the guy's posting history.

On the other hand, I'm not prepared to buy the equity here, except possibly as a momentum trade, but I'll be avoiding that too - it's just too darn risky. I am an RGL1 bond holder though.

"Market abuse and intelligence teams at the FCA notified."

That will result in a big nothing, like it has on literally every other occasion that the FCA have been notified of anything. It's hilarious to even think they'd do anything for private investors.

I've bitten the bullet and dumped my entire holding here (2% of portfolio). There are just too many flies on this turd and the technicals are grim.

I see HBR being of zero benefit to SQZ and vice-versa.

The only future for either (sadly, I own both of these dogs) is buying something OUT of the reach of UK taxes.

@TheTrotsky: You can definitely trade RGL1 online with HL. That's how I bought it. I've had to use the phone service for some other securites, but not RGL1.

I don't currently hold any gilts, but yes, some require a phone order. I don't know why that is. I have a threshold of ~7% before I become interested in fixed income and I mostly prefer closed-ended funds (e.g. SMIF) than single bond holdings, due to the complexity of the credit analysis. RGL1 caught my attention, because I already knew a bit about the company, having previously been an equity holder. And it appears simpler than others.

Unfortunately, the LSE Order Book for Retail bonds (ORB) is very limited. You need to know what you're looking for. HL do have a list of bonds/gilts etc, but it's small. Most of the prefs that I hold are US ones that I research through Seeking Alpha and various fixed income sites such as 'The Preferred Stock Channel'.

For prefs, you get a good idea by dividing the annual coupon by the price, but for bonds of finite duration, you might need to look elsewhere or calculate it yourself using the Excel/Google YIELD() macro or Seeking Alpha for the US names. The more sophisticated platforms (e.g. Bloomberg) already show this stuff.

@KinkDink: Why would somebody short it just because the per-share price is higher? I don't understand your argument. Why would the consolidation change anything? The market cap/enterprice value stay unchanged. I couldn't care how many shares that I have; clearly some people do, but I don't get it...

It's like saying that you'd prefer two quarter sized pieces of cake rather than 1 half sized one. It makes no sense to me.

@Trotsky: I bought the bond with Hargreaves Lansdown (online/ticker RGL1). The spread is prohibitive if you plan to trade it. Unless something drastic happens, I will hold until the maturity in August next year.

I try to keep it simple when analysing credit risk. Gross portfolio value: £752.9m, cash: £32.6m and debt: £428.5m ==> net value: £357m and LTV: 52.6%. It seems to me that the gross portfolio value would have to fall by 50% before the retail bond was at risk.

I don't know the latest LTV on the Santander portfolio, but clearly they need to quickly sell some of those properties before the covenant drops to 50% next year. At £62m, the Santander loan is not that big. And with some of them being voids, maybe they don't need to sell many of the income-producing ones - but I'm just speculating.

Regarding your other comment on the bond. Almost all fixed income has dropped over the past year and this one doesn't look that unusual. UK prefs with investment grade companies (e.g. Aviva) are yielding 7%. Some of the US prefs with high quality names are yielding 8-9%. The RGL bond is unrated/unsecured, so clearly it needs to yield well north of 10%.

I could be wrong. DYOR.

@Trotsky: I don't disagree with anything you've said.

I just wished to evaluate for myself how close RGL might be to breaking a covenant as it now stands. If the figures are correct, then I would say that being within 3% of an LTV breach within 12m is a significant revelation.

As investors, we can only guess what would happen if the covenant is breached, but a good working assumption is that the lender is within their rights to call the loan.

Obviously it would require more analysis to determine whether or not that would lead to a reduction in the dividend as it would depend on which of the properties is void etc. As I am not currently an equity holder, I have no interest in doing that.

Good luck.

FYI. You will find a similar conclusion from Ad v fn/@airbus5000 on 13 Jun @ 6:13pm.

In summary, unless something has changed (i.e. that they have renegotiated the covenants), there is more than a theoretical possibility of a breach within 12m. A breach looks quite likely unless property values bounce.

I've just had a look at the loan documentation in the prospectus from the last equity raise and the HY 2023 report.

From what I see, the Santander loan could be problematic if the LTV was to rise by a few percent.

Unless it has changed, the covenant for this loan is currently 60%, while the LTV for the properties against which it is secured is currently 47.2%. The covenant drops to 50% from the 5th anniversary, which is on 18 Jun 2024!

The RBS loan covenant is the next closest which was 7% away as of 30 Jun 2023.

=====

*Do your own research*

*I could be wrong*

Please note that I am going on the covenant info from the prospectus which might have changed, but I can't see that data given anywhere else.

The covenant info is taken from page 166 of the prospectus and from the data given in the latest HY report.

@Trotsky: I'm unclear why you've made the comments in your first paragraph. Clearly, the market value of the bond is irrelevant to RGL. It can't be called early. The cost to them is precisely £50m plus the remaining two coupons of £1.125m each.

Anyway, as a bond investor, I'm only concerned about their ability to pay; i.e. what happens if they had to liquidate everything/will there be sufficient funds to repay.

I think it's amazing that the equity popped after the LTV had risen in the latest RNS. It makes me wonder how far off a breach we are for one of the secured lenders. It could be very close indeed, if not reachable within months? Does anybody know the lowest LTV covenants that they have? I am guessing they are different per lender. I'd be surprised if they were beyond 60%.

I am now of the opinion that a breach of a loan covenant is a real possibility. If that happens, the bank in question will be within legal rights to require a liquidation of sufficient property to repay them immediately, in full. At the moment, I don't see that being a problem for bond holders, but clearly that will be a disaster for the equity holders.

The 'coupon' on the retail bond bond is 4.5%, paid in installments every 6m, but that's not the 'yield'. In order to compare different bonds, it's not as simple as comparing coupons...

The retail bond is looking attractive on a risk/reward basis, with yield of ~15%. It would be interesting to hear some other viewpoints.

Bull:

- Only 8-months to expiry; the first secured debt expires in August 26, 2y later

- Cash on hand and cancellation of the common share dividend would allow repayment of the bond

- Not repaying the bond would be a 'nuclear' event for RGL which would almost certainly cause the banks to call in the loans, resulting in the liquidation of assets and the end of the company. This seems like an unlikely event

- The LTV includes the retail bond, so there's no reason to believe they wouldn't want to repay it as it would reduce LTV by around 6%

- All of the debt is fully hedged at 3.5%

- The Net gearing is not high by US REIT standards

- Achieving even 50% of the portfolio value in a liquidation scenario would allow repayment of the retail bond

Bear:

- The retail bond is unrated and unsecured

- How much of the cash on hand is 'restricted' by the banks?

- How realistic is the NAV?

- The NET gearing is very high by UK REIT standards