Mtfhc

[percy]

Motor Trade Finance Perpetual Bonds.
Size of issue $40mil.
Face Value $1
Coupon rate $6.26
Dividend Reset date,30th September annually.
Dividendend Rest Margin,2.40%, including full imputation credits,above the Benchmark Rate.
Currently trading at 70 cents.giving a net yield of 8.94%.
Illliquid? Lately liquidity has been good.
Risk.These bonds are behind all secured and unsecured creditors,but ahead of shareholders .
Liability.At present time MTF are awaiting the out come of a court case, where the commerce commission state MTF charged, in some instances too high a fees.Result of this case should be known in November.
MTF is a co-op with very strong dealer sharehoders such as Ford and Honda dealers.
Heartland have expressed interest in taking over MTF.
This is the first bond I have brought [only a few] at 68cents.
The reason I have brought them, is I think they will be rerated once the court case is settled,and should Heartland takeover MTF go ahead they will then be backed by a Bank.
Whatever happens I will enjoy great dividends,so long as MTF stay profitable.

[Lizard]

Thanks, percy. I have just a few... very "junky" in terms of ranking and very limited protection for holders, but MTF survived the GFC and, as a co-op, current shareholders have a strong interest in survival...plus the alternative is an HNZ takeover. I don't think there is any obligation to redeem on takeover, but HNZ could probably find cheaper sources to borrow from at present. Small hold only.

[Joshuatree]

Cheers for the headsup. I bought some @ 69 not knowing re the court case but happy with the risk reward atp.Looks like others have the same idea.

[percy]

Thanks, percy. I have just a few... very "junky" in terms of ranking and very limited protection for holders, but MTF survived the GFC and, as a co-op, current shareholders have a strong interest in survival...plus the alternative is an HNZ takeover. I don't think there is any obligation to redeem on takeover, but HNZ could probably find cheaper sources to borrow from at present. Small hold only.
There is no obligation to redeem on takeover,solely at MTF's [or whoever controls MTF] discretion.

[Okebw]

Is there any word regarding what penalties would be imposed were the commerce commission case to be lost?

and forgive me for a question that probably belongs in the newbie thread, but I've never purchased preference shares before. Is it face value that's paid (i.e the 70 cent ask price) or does interest accrue since the last payment as with bonds?

[percy]

To read the court case judgement go to www.stocknessmonster.com in quick tools type in mtfhc then NZ then news.then go to right hand side of page and click onto 2013 news,then click onto 8th October High Court Judgement and read it for yourself .
The face value is $1,so you are paying 70 cents for $1.Interest is paid quarterly,next payment is this December.
The 6.26% is on the face value $1 which works out at 8.94% at 70 cents.
So are they worth 70 cents [the market says they are],if court case liability is modest, are they worth more,should Heartland Bank take them over are they worth more?
MTF has strong car dealers who should be trading well.So strong shareholders.
Should the court case go against MTF and commerce commission sends a strong message to finance companies "that some fees are unreasonable" how much are they worth?
This is my first bond,it is a perpectual bond so I will follow its progress with ongoing interest payments going into my bank each quarter.So I am very much a learner here.
My best case objective is they pay me over 12.5% gross on my 68 cents purchase price and are rerated to 75cents or so in the next year.So 10.2% capital appreciation and 9.2 net interest gives me 19.4% return.Should they be rerated to 80cents my total return over a year would be 25%.

[noodles]

My best case objective is they pay me over 12.5% gross on my 68 cents purchase price and are rerated to 75cents or so in the next year.So 10.2% capital appreciation and 9.2 net interest gives me 19.4% return.Should they be rerated to 80cents my total return over a year would be 25%.
Don't stop there Percy. Should HNZ buy MTF and decide to redeem the preference, they will be rerated to $1 and my return would be XX%(too late to be bothered to work it out).

Like Percy has stated, there is a court case to be resolved. The liability if MTF loses is unclear. Anybody buying should not be betting their house on it.

Thanks for highlighting this one Percy

[percy]

Every now and again there has been talk of HNZ having a bond issue.
My thoughts are the MTFHC issue at $40mil is very small, and HNZ would go for a lot larger issue.
They might therefore offer to repay these bonds at face value $1, or give holders the options to convert to HNZ bonds.
From 70 cents to $1 is 42.85%.That is off course dependent on HNZ taking over MTF.
Lots of ifs ,and unknown liability [court case],but it caught my interest.
The court case,I take it is I take "the some fees are unreasonable" to refer to troublesome loans.
Most loans are not troublesome so I do not see the problem as being huge.
Troublesome loans are difficult and expensive to collect,so I think "commercial practice" or reality common sense must be reached.The courts with their huge fine arrears, should be aware of the collection problems.

[Beagle]

Before anyone gets carried away with their capital gain prospects, one should ask themselves...suppose we get through the court case appeal okay and that obviously contains its own risks and suppose HNZ does eventually make a takeover offer that's accepted, HNZ are still subject to stringent capital requirements of the Reserve Bank including capital adequacy requirements so I can't think of any reason why the parent company would repay funding that's classified as capital in its subsidiary when said capital is on such attractive terms at only 6.8% ????. Its simply not possible to raise money that's classified as capital, (any proposed 5 year term or thereabouts bonds are not capital) at anything like 6.8% so I'd rate the likelihood of all that happening and the preference shares being repaid as very remote.

On the other hand as discussed with Percy by PM, there's a good chance the preference shares would be re-rated under new ownership so some capital gain is possible under a potential HNZ take-over.

Its also perhaps worth noting that its a matter of public record that MTF have spurned HNZ's overtures to date.

[percy]

I would like to acknowledge the help Roger gave me understanding the ins and outs of these MTFHCs.
Again thank you Roger.

[Beagle]

Always happy to help whenever I can mate.

[percy]

Well for an illiquid "junk bond" there has certainly been "respectable" volume being traded.
The price has moved from 68cents,when I brought on the 7th October to 73cents today.7.35%.,or 2.45% a week. Nice.!
May have to look at more bonds,or do I put it down to beginner's luck? lol.

[Joshuatree]

Ditto here lol. Thankyou to Lizard.

[percy]

Today's announcement that The Commerce Commission has abandoned its cross-appeal in the Sport Zone case comes as no surprise.
MTF and SportZone's appeal is set down for 19-20th November.

[percy]

Well for an illiquid "junk bond" there has certainly been "respectable" volume being traded.
The price has moved from 68cents,when I brought on the 7th October to 73cents today.7.35%.,or 2.45% a week. Nice.!
May have to look at more bonds,or do I put it down to beginner's luck? lol.

But wait........There's more !!!!!!!!!!!!!!!!
Great volume being traded at 75cents............................
Another 75,000 this morning................

[noodles]

News out today. NZX announcement for MTF update on Sportzone Case
https://www.nzx.com/companies/MTF/announcements/257831

I note "the aggregate amount for 39 Sportzone fees is less than $10,000" or about $250 per loan.
"MTF considers that those judgments are incorrect.". The judgement is subject to appeal.

[nextbigthing]

What was the outcome of the court case? Current yield is down to 12%.

[percy]

What was the outcome of the court case? Current yield is down to 12%.

No news as yet.
I received my first quarterly interest payment on 31/12/2014.

[nextbigthing]

Thanks Percy.

From http://www.mtf.co.nz/pdf/investors/2014_MTF_Annual_report.pdf

The dividend rate is set annually, at 2.40% over the one-year swap rate, and was reset at 6.26% (2013: 5.32%) on 30 September 2014, for the
twelve months to 30 September 2015.


And from the notes;

perpetual preference shares
Perpetual preference shares are classified as equity. The shares are non-redeemable and carry no voting rights.
Dividends are not guaranteed and are payable at the discretion of the directors. Any dividend is recognised as a
distribution within equity.

perpetual preference share dividend
fully imputed dividend declared and paid during the year (net) at 3.83 cents per share (2013:
3.58) 1

[noodles]

Thanks Percy.

From http://www.mtf.co.nz/pdf/investors/2014_MTF_Annual_report.pdf

The dividend rate is set annually, at 2.40% over the one-year swap rate, and was reset at 6.26% (2013: 5.32%) on 30 September 2014, for the
twelve months to 30 September 2015.


And from the notes;

perpetual preference shares
Perpetual preference shares are classified as equity. The shares are non-redeemable and carry no voting rights.
Dividends are not guaranteed and are payable at the discretion of the directors. Any dividend is recognised as a
distribution within equity.

perpetual preference share dividend
fully imputed dividend declared and paid during the year (net) at 3.83 cents per share (2013:
3.58) 1
I calculate the current gross yield = 8.5%. I had previously assumed that the dividend of 6.25c was net. However, it is gross.

My quarterly dividend statement arrived so I can calculate the net div and Imputation credits per share.

Net Dividend = .0457
Imputation Credits = 0.0165
Total = 0.0625c

This is consistent with the announcement that the reset rate = 6.25%
http://stocknessmonster.com/news-item?S=MTF&E=NZSE&N=255897


Yield = 0.0625/.735 = 8.5%

[Beagle]

Thanks for clarifying the situation Noodles. Honestly...8.5% in my view is woefully inadequate for this type of perpetual security issued on those terms.
Another classic Forsyth Barr where they really "looked after" their clients...ranks almost up there with Feltex, Credit Sails and their abhorrent involvement with SCF.

[Penfold]

Hard to price these... No call date/redemption date. How can you price them without knowing when principle will be returned? You would expect some signal to market on redemption, even with perpetuals.

All I can see in the terms is that they can chose to redeem with 30 days notice (but why would they?), or if they go into liquidation (not ideal).

Agree with Roger, massively overpriced. I have owned in the past when all the spreads blew out on this complex stuff. Have long since sold as everything has shortened up.

This quote comes to mind - “More money has been lost reaching for yield than at the point of a gun.”

[percy]

Yes the risks out way the rewards.

[Joshuatree]

Quite a jump,8.6% today to 76c today re a 1 year high on good vol; no idea why.

[percy]

Quite a jump,8.6% today to 76c today re a 1 year high on good vol; no idea why.

Local broker at Hamilton Hindin Greene in Christchurch has picked up on what we were up to a year ago.!
Read my original post.

[Joshuatree]

Cool thanks percy.Our fave stock heartland causing the rerate, at least partly a win /win. Hope it goes to $1 as noodles suggests:)

[Harvey Specter]

Hope it goes to $1 as noodles suggests:)Why would it be redeemed at face value rather than just bought on market?

[percy]

Why would it be redeemed at face value rather than just bought on market?

Noodle's post #7, and my post #8 on this thread,may explain how we thought at the time.

[Beagle]

It took the High court circa 5 months to hand down their ruling on this matter.

If we assume it takes the Supreme court a similar amount of time then we won't expect a final ruling until 5 months after November 2015, somewhere around March 2016 and then the negotiations and shenanigans between HNZ and MTF's board start. Remember MTF's constitution precludes any shareholder holding over 10% without the board's approval and such approval is unlikely to be forthcoming unless HNZ's offer is truly compelling in which case the reticent board members despite knowing they'll be out of a lucrative job will know they have no other legal alternative than to recommend acceptance.

MTF don't seem all that open to HNZ's approaches and even if HNZ finally get control of the company unless anyone can point to a specific clause in these perpetual notes to the effect of compelling HNZ to buy them out in a takeover situation then I see no reason why HNZ would as these perpetual notes would rank as Basil 3 compliant capital under the Reserve Bank's requirements.

You can't raise Basil 3 capital at circa 5% and as these are perpetual they would form a sweet and cheap funding source for HNZ....in fact the mere existence of these notes and terms of issue thereof is probably one of the most attractive features of MTF.

The odds on a capital repayment would appear to be very slim IMHO.

[winner69]

roger, probably in here somewhere. Your homework!

http://www.mtf.co.nz/investor/pdfs/MTFProspectus.pdf

[Beagle]

Perpetual: The Perpetual Preference Shares have no fixed term and will remain in existence unless and until they are redeemed or repurchased for cash and cancelled (unless held as treasury stock in accordance with paragraph 1.24 of the terms of the Perpetual Preference Shares) or MTF goes into liquidation. Perpetual Preference Shareholders have no right to require redemption by MTF.

That's all you need to know right there. Probably one of the main attraction of MTF to another party is this ultra cheap source of basil 3 compliant capital funding as I can't see from the most recent half yearly results or outlook commentary there's a heck of a lot of compelling reasons as a stand alone acquisition. Probably the other main attraction is synergy benefits expanded product range although it could be easily argued that the acquirer could fill out their product offer themselves.

I can;t see any compelling reason to own these perpetual pref shares IMO. Current yield is ~5/ 0.76 = 6.58%...that would engender nothing other than a big yawn from me.

[Harvey Specter]

I'm with Roger on this. There is no way they will be redeemed at face value. If anyone did want to cancel them, they would buy on market and cancel, and take the huge capital gain inhouse rather than to the speculators. IFT is doing the same having recently purchased a few on market (at the large discount) and cancelling.

[Joshuatree]

6.58% plus the 8% increase in value of my units = 14.58% ,YAWN ....def one of the lower returns in my portfolio nothing to get excited about thats for sure.:t_up:

[Beagle]

6.58% plus the 8% increase in value of my units = 14.58% ,YAWN ....def one of the lower returns in my portfolio nothing to get excited about thats for sure.:t_up:

Nice for you but to imply that anyone buying at 76 cents could achieve a similar capital gain is drawing a long bow in my opinion.

[Joshuatree]

No implication; adding up my personal gains and hopeful of more. Unlike you promoting the hell out of AIR @$2.90; with all that insane irrational exuberance over 100's of posts.Any way looks like buyers then close to breaking even;).

[Beagle]

Really quite unnecessary for you to take such an argumentative approach and very disingenuous to pick the top.
Have you checked the AIR thread lately to see how many people have been most appreciative of my analysis and advice, many of whom bough in the low to mid $2 range and are enjoying high fully imputed dividends at a rate far better than this investment.
Sorry your stock is down 1.3% today with weak and much lower bidding and is so illiquid...but if you buy dogs you have to expect fleas :)

[Joshuatree]

So sorry i wasn't ramping AIR at the top ;) I don't need to ramp anything I'm in, up or ramp anything I'm out of ,down. I don't need to influence anyone; or be right; i don't need followers; I feel fine as i am. I don't worry about daily movements.Im enjoying an a new high point in my portfolio value; I enjoy a forum to share in equally without narcissism, one upmanship, competitiveness, ego, overlords, etcetc.
Its been a good week for MTF ; I'm happy about that.:). Been a great month.The weather has been beautiful too and I'm not missing my Gallbladder either.Looking forwards to the big game this weekend.

[Doug]

Probably one of the main attraction of MTF to another party is this ultra cheap source of basil 3 compliant capital funding.

Here an RB document summarising its position on Basil III: http://www.rbnz.govt.nz/research_and_publications/reserve_bank_bulletin/2015/2015may78-5.pdf
Basil III compliance is an attribute of a bank not any particular security but I guess Roger means to imply that MTFHC is a qualifying AT1 security in RB parlance. However it is pretty clear to me that MTFHC has no loss absorbency provision satisfying Basil III capital requirements and therefore does not qualify for either Tier 1 or Tier 2. So maybe not so cheap. I think such securities are recognised for existing banks as an interim measure until 2018 -2019 but whether they would be recognised after an acquisition such as HNZ purchasing MTF is a fairly moot point. I don't know what HNZ's current Basil III capital ratio is but I would be surprised if it was sufficient to absorb such an acquisition without further capital.

Disc I hold both HNZ and MTFHC.

[Joshuatree]

Whats a happening with MTFHC, Redemption?, Anyone have any ideas price been on the up .Still hold a few. Price started lifting from $60 early may now at $67.90

[Joshuatree]

Last reset in oct 2018 @ 4.38%.Price up nearly 8% in 1 year. Payment date 31 July.