|
Post by wisealphateam on Apr 5, 2017 14:50:40 GMT
Dear all, We’ve added a new bond to the WiseAlpha market – this time from Matalan, the national out-of-town fashion retailer. From time to time we move out from our 5-8% target return range (large stable companies) and will have a few higher yielding investments like this. Up to you to decide whether a senior secured loan to a £1bn revenue firm is less or more risk than some of the other P2P lending niches out there! You know our view. Matalan 6.875% Senior secured bonds maturing June 2019 • Matalan is a leading out of town fashion and homeware retailer with 227 stores in the UK, an e-commerce platform and 24 overseas franchise stores. • After a temporary dip in performance during the 2016 financial year (ended Feb 2016) the last 9 months’ performance has seen the company’s profit rebound with management expecting 2017 (year to Feb 2017) profit (EBITDA) to be £75-77m versus £56m in 2016. Revenues of over £1bn. • To aid future revenue growth Matalan has recently launched a branded content deal with ITV and Time Inc. to support its new TV shows (see here: www.matalan.co.uk/the-show). Further details located here: www.wisealpha.com/loan/detail/31/mataCapital at Risk.
|
|
kaya
Member of DD Central
Posts: 1,150
Likes: 718
|
Post by kaya on Apr 5, 2017 15:06:14 GMT
Aye, catchy headline rate!
I'm still dreaming of the day when I get 100% yield to maturity on a 5 year 20% loan at Rebs - or even more than that nowadays at FC!
Impossible for me now, but anyone brave enough to stay the course on that?
|
|
|
Post by wisealphateam on Apr 5, 2017 15:15:57 GMT
Did you come in at par (100) on the Rebs loan or at a discount. If at par isn't that a 20% YTM?
The simple way we think about things in the corporate senior secured market is by looking at the size of the loan or bond relative to it's profits to check whether there is value. So let's take Matalan for example. It's senior borrowings are 3.4x EBITDA and companies in this sector are valued between 6-9x EBITDA so it's like buying into the company at 40-50% of its overall value but being capped at a 15% return per annum until maturity.
|
|
adrianc
Member of DD Central
Posts: 8,974
Likes: 4,801
|
Post by adrianc on Apr 5, 2017 15:22:13 GMT
Every time I think I understand bonds, something like this comes up.
Can somebody please explain how... Matalan 6.875% senior bonds ...give... Current yield - 8% ...becomes... Estimated yield to maturity** - 15% ** This is an estimated annualised return gross of taxation and our Service Fee assuming the investment is held to maturity. It equates the present value of expected future interest payments of a Note into an annual yield across its life relative to the Note's current price. Where the interest coupon is partly dependent on Libor it uses market based forecasts of Libor and assumes that all interest is re-invested at a rate equal to the Yield to Maturity. For floating rate coupons because current market based forecasts are for Libor to increase in future years the calculation of Yield to Maturity assumes the interest paid to investors will be higher in future years. However, there is no guarantee that the Bank of England will raise interest rates or that Libor will increase as a result. In addition, any changes to the financial circumstances of the company or changes in the economic terms of the underlying loan could also impact future interest payments. The Yield to Maturity is therefore an estimated return only and is not guaranteed.
This makes my head hurt.
|
|
|
Post by wisealphateam on Apr 5, 2017 15:27:07 GMT
Hi Adrian,
So the coupon is 6.875% per annum but the price is 86% - this means if you wanted to own say £100 face value of the bonds you would only have to pay £86.
The current yield is 6.875%/0.86 = 8.0%. So this is the effective annual cash interest return you get based on the price (£86) you paid.
The Yield to Maturity takes into account the price you purchase at. So at maturity you would get back £100 having only paid £86 for the principal face value of the bond. This capital gain plus the cash interest you make gives you the 15.0% annual return or yield to maturity.
|
|
adrianc
Member of DD Central
Posts: 8,974
Likes: 4,801
|
Post by adrianc on Apr 5, 2017 15:34:01 GMT
Hi Adrian, So the coupon is 6.875% per annum but the price is 86% - this means if you wanted to own say £100 face value of the bonds you would only have to pay £86. The current yield is 6.875%/0.86 = 8.0%. So this is the effective annual cash interest return you get based on the price (£86) you paid. The Yield to Maturity takes into account the price you purchase at. So at maturity you would get back £100 having only paid £86 for the principal face value of the bond. This capital gain plus the cash interest you make gives you the 15.0% annual return or yield to maturity. Aha!
|
|
|
Post by wisealphateam on Apr 5, 2017 15:37:33 GMT
Glad to help. I do plan to put on a basic education primer on bonds on the site soon as well so that should help especially when we have a broader variety of bonds/loans and yields. When that happens people will want to try to learn about risk-reward and relative value of each investments (in the same way people try to understand whether one stock offers more value than another).
|
|
kaya
Member of DD Central
Posts: 1,150
Likes: 718
|
Post by kaya on Apr 5, 2017 17:00:36 GMT
Did you come in at par (100) on the Rebs loan or at a discount. If at par isn't that a 20% YTM? The simple way we think about things in the corporate senior secured market is by looking at the size of the loan or bond relative to it's profits to check whether there is value. So let's take Matalan for example. It's senior borrowings are 3.4x EBITDA and companies in this sector are valued between 6-9x EBITDA so it's like buying into the company at 40-50% of its overall value but being capped at a 15% return per annum until maturity. The Rebs examples are amortizing loans anyway, so not directly comparable. Like adrianc above I was somewhat thrown by the figures. Now I think that the return figures here are so favourable because the bond has just 2 years or so left to run, is that right? So in just 2 years £86 turns into £100, plus quarterly interest is payable too. If Matalan is doing so well, who/what entity is willing to sell off this bond at such a discount? Who is making a loss here? If there are winners there must be losers!
|
|
|
Post by wisealphateam on Apr 5, 2017 20:00:41 GMT
Hi Kaya,
The main reason the price is at a discount is because there was a dip in performance in the 2016 financial year (to Feb) and the company is still in the process of rebounding to it's previous revenue and profit level - obviously if it does fully rebound (and that's up to you to determine) the price will jump up. You can see the key financials and reports on the company description page on our site and read about the company and it's latest strategy. There are also a whole host of other reasons which determine price and yield such as how investors view the risk versus other similar companies, macro environment, sector risk perception, technical reasons such as ratings downgrades which affect funds ability to keep holding it etc. Here market participants feel an 8% current interest yield with capital upside is what is needed from a risk-return perspective.
There are always winners and losers just as in the stock market. So the losers are the funds or banks who bought in early and then decided to sell at a loss and re-invest the money elsewhere. But remember they will have earned the cash interest in that time and so their overall loss may not be that much when you take that into account. And plus they may have re-invested in something else that has seen strong gains. Long-term holders who wait till maturity obviously won't lose out if the company pays back it's bonds.
Just like when you invest on FC and choose a loan to invest in you have to decide whether you think Matalan is ultimately creditworthy and will pay it's bonds back and whether the 8% current cash interest yield plus the 14pts of capital upside is interesting versus what other opportunities you see. The difference here is that the bond is secured on the company's assets and shares which is not the case with unsecured small business loans and unsecured mini bonds and so there is always an ability to recover some or all of your money if the company can't pay it's bonds back or get some equity in exchange.
|
|
kaya
Member of DD Central
Posts: 1,150
Likes: 718
|
Post by kaya on Apr 6, 2017 6:51:13 GMT
The above posts paint two interesting outlooks, somewhat upbeat and somewhat downbeat. Now, shall I put on my rose-tinted goggles today?
|
|
|
Post by wisealphateam on Apr 6, 2017 11:37:41 GMT
Optimism is a good quality! If it helps to know, we always invest in every investment we list.
|
|
|
Post by wisealphateam on Apr 6, 2017 15:36:53 GMT
Less than £12,000 left of Matalan...
|
|
stevio
Member of DD Central
Posts: 2,065
Likes: 894
|
Post by stevio on Apr 6, 2017 18:52:59 GMT
Glad to help. I do plan to put on a basic education primer on bonds on the site soon as well so that should help especially when we have a broader variety of bonds/loans and yields. When that happens people will want to try to learn about risk-reward and relative value of each investments (in the same way people try to understand whether one stock offers more value than another). This would be extremely useful Should there be similar structured bonds, your explanation of how the figures are arrived at, in a thread like this would be much appreciated. If we are able to understand it, more people are likely to invest
|
|
|
Post by msa on Apr 6, 2017 19:38:04 GMT
Seems it already sold out within a day... Will you be adding more of it again?
|
|
|
Post by wisealphateam on Apr 6, 2017 19:49:43 GMT
Hi Msa,
We're buying some other bonds at the moment but will come back to it again pretty soon. In the meantime we have a bit that we keep for future interest re-investment but we'll make that available now until we get some more. So there is still a chance to pick up a little scrap if you want some.
Kind regards,
|
|