Hi All. Long time sharemarket investor but very shy bond market investor here. In fact TNRHA, the soon to mature (30th September 2016) bonds have been my only bond investment for some years. I was skeptical two years ago when Dorchester issued these bonds, but the 9% coupon rate was enough to overcome by skepticisim! Now in effect the bonds are being reincarnated as TNRHB, but with a much lower 6.5% interest rate. Are they still the compelling investment that I believed the TNRHA bonds were two years ago? Let's see.
SNOOPY
Turners (TNR) bonds
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17-09-2016, 11:42 AMSnoopyTurners (TNR) bonds
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17-09-2016, 11:48 AMSnoopyGross Income: TNRHA vs TNRHB vs TNR SharesFrom an income perspective, I always like to compare the gross dividend an investor would receive if they held the shares with the equivalent bond yield.Quote:
Originally Posted by Snoopy
TNRHA TNRHB Bond Coupon Rate at Issue 9.0% 6.5% TNR equivalent share price (one month before bond issue) $2.50 $3.02 TNR equivalent dividend (adjusted for 10:1 share consolidation) 4c + 6c = 10c (actual gross) 3c + 3c +3.5c +3.5c = 13c (forecast net) or 18c (forecast gross) Gross Share Yield 4.0% 6.0%
Helped by imputation credits from the shares beinhg available from late FY2016 on, the gap between income form the bonds and income from the shares has closed considerably. Because not all of the profits are paid out as dividends (policy is a 50-55% payout ratio), we can expect the retained earnings to grow profits over time. As the profits trend up, then so should the share price. OTOH the bond price will not change if held until maturity two years away. IMO the balance has now tipped towards buying the shares, not the bonds, from an overall investment perspective.
SNOOPY -
17-09-2016, 12:09 PMSnoopyBanking Covenants on TNRBelow is a comparison of the different financial covenants that Turners agreed to with their banks at the time of issue of both respective bonds. These numbers are taken from each respective bond prospectus.Quote:
Originally Posted by Snoopy
TNRHA (issue) TNRHA (forecast at maturity) TNRHB (issue) Interest Cover (EBITDA to Total Interest) 3.0 times 3.5 times 3.0 times Interest Cover (Dorchester Finance Limited, Oxford Finance Limited) N/A N/A 1.25 times Maximum Leverage Ratio (Gross Debt to EBITDA) 3.75 2.0 2.5 Minimum Debt Cover Service Ratio (cashflow for debt servicing)/(total debt service costs) 1.1 1.1 N/A Equity Ratio (Dorchester Finance Limited, Oxford Finance Limited) N/A N/A 20% Maximum CAPEX as a percentage of base case 110% 110% 110%
I should note that these covenants can be subject to amendment after the bonds are issued, and are not 'set in stone' for the life of the bonds. But I make the following observations.
1/ The allowed leverage ratio at the time TNRHA bonds were introduced was set temporarily high, because the business at that time was in a consolidation phase.
2/ It looks to me that with TNRHB, the 'tool for keeping parent bank capital risk in check' has changed. Changed from looking at 'debt servicing costs' to having a 'minimum equity ratio' on the loan book.
3/ The issue of the TNRHB bonds looks to affirm a rather more risky capital regime in terms of 'interest cover' and 'maximum leverage ratio'.
4/ Notwithstanding (3), the 20% equity ratio required on the finance company loan books is reassuringly conservative
SNOOPY -
17-09-2016, 02:37 PMSnoopyCampbell MacPherson AppraisalAs part of the AGM documentation, an assessment of the bonds was made by independent firm Campbell MacPherson. On page 11 of the CM report they stated:Quote:
Originally Posted by Snoopy
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"The proposed interest rate of 6.5% p.a. is significantly lower than the interest rate on the existing bonds of 9.0%. This primarily reflects:
1/ A reduction in wholesale interest rates over the past 2 years.
2/ A reduction in financail risk associated with Turners
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I accept the first point, but not the second.
It is true that Turners have been well managed over the last couple of years. But the loan business is competitive, with other good operators out there who can win over your customers. What is also true over the last two years is that in the loan industry, the climate has been exceptionally favourable for those loan businesses that survivied the great financial sector collapse. There is an old investment saying that only when the tide goes out you get to see who is swimming naked. Finance companies have been swimming at high tide for the last two years. Just how badly Turners will be affected during the next financial downturn is unknown. But IMO the 'next downturn' risk has not reduced for Turners over the last two years.
My opinion is reinforced by the relaxed 'Leverage ratio' and 'Interest cover' covenants. This would suggest a more relaxed lending policy. And this implies that company risk has increased from a few months ago.
The report carries on
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We estimate the market based interest rate on a security with similar chacteristics to the New Bonds should be in the range of 6.0% to 8.5% per annum (representing a premium of 1.0% to 3.5% over Turners FY2016 bank borrowing costs of 5.0%).
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Turners 6.5% offered is towards the bottom end of this range. I don't think that is compelling enough, when there is every chance that interest rates will be higher in two years than they are now. If the new interst rate was 7.5%, my answer would have been different. I won't be renewing by TNR bonds as a fixed interest investment. However, I will be renewing -some- of my TNR bonds!
SNOOPY -
17-09-2016, 02:59 PMSnoopyThe TNR bonds 'hidden benefit'So what is the thinking behind my apparent tautology?Quote:
Originally Posted by Snoopy
There is another way of looking at the TNR bonds, that is as an option to purchase TNR shares in two years time. The maximum you will pay for these shares is $3.75. But the real advantage could be if the share price does not advance. This will trigger option (b). The bond to share conversion price would be:
"a 5% discount to the average daily volume weighted price of Shares in the 90 days prior to the maturity date as determined by an independent advisor appointed by Turners."
IOW bondholders have a window for potentially buying some cheap and brokerage free Turners shares in two years time, or getting their capital back. It is for this reason that I will be buying some bonds. However, the risk profile as I see it has changed. So my TNR overall holding (shares and bonds) after the new bond issue will be made up of 2/3 shares and 1/3 bonds, whereas before it was 1/10 shares 9/10 bonds.
SNOOPY -
18-09-2016, 12:58 PMGrimy
Thanks for your analysis Snoopy. I probably won't be investing in these bonds. But more because I'm building cash at the moment (will be greatly helped by AIR tomorrow) for future investments, rather than anything against the Turners bonds.
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19-09-2016, 09:43 AMHoop
Thanks Snoopy
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19-09-2016, 10:05 AMSnoopyI should put the comments on my assessment of Turners bonds in context. I am a long term investor. So if the share price of TNR was lower in two years time than now, this would not worry me. If you wanted to definitely spend your invested capital in two years, then the TNRHB bond issue has more merit.Quote:
Originally Posted by Grimy
As a long term investor I hope for long term capital gain, as the dividend flow increases. But I accept the risk of capital loss is there, albeit reducing the longer your investment time horizon. My big issue with particularly New Zealand market bonds, is that the interest offered is sometimes less than the dividend yield from shares in the same company. In theory should a company get into trouble, the shareholders lose their capital before the bondholders. In practice, I cannot remember a company on the NZX that got into trouble where the shareholders lost their money, but the bondholders got all their capital back. So as a bondholder if you
1/ Get the same after tax income as a shareholder. AND
2/ Give up your right to capital appreciation AND
3/ Retain your right to lose your capital shoudl the company get into trouble.
THEN why would you do it? For this reason my preference is always to invest in utility type shares instead of bonds, for the New Zealand market (where high dividend yields are common) at least.
SNOOPY -
20-09-2016, 09:27 AMSnoopyI got a follow up note in the mail yesterday from Turners, reminding me about the TNRHB bond offer which closes at noon on Friday.Quote:
Originally Posted by Snoopy
What a contrast to the original 'under the radar' TNRHA bond offer. In that, Turners claimed there were no plans to list theTNRHA bonds. Further, bondholders should therefore plan to be in until maturity. At the time Dorchester were really gunning for the old Turners Auctions shareholders to accept Dorchester shares, not what turned into TNRHA bonds as consideration for handing over their TUA shares! Subsequent to Dorchester morphing into the new Turners, the TNRHA bonds were of course listed - although liquidity was never good. Not sure how much of that was because at the time of TNRHA conception, bondholders were told they would have difficulty selling, so they never tried? Nominally TNRHA bonds were available to the general public. But the terms were so good and the scaling so skewed towards TUA shareholders, I don't think any investor not already inside the Turners tent got a look in.
Now we have TNRHB bonds and the public are once again invited to participate. With terms no longer being so good, maybe this time the wider investing public will get a look in? If that improves liquidity in the new bonds, that will be fine by me. I see a couple of brokers have now commenced coverage of TNR shares. I am curious if any brokers out there are promoting the TNR bonds!
SNOOPY -
21-09-2016, 10:41 AMpeat
Thanks for your thoughts Snoopy
I'm now working for a brokerage type firm and this is my first issue to work on. We consider Turners are looking good at the moment and the duration risk of the bonds is low but yes liquidity risk will exist for divestment
A very useful yield however and I concur that one of the advantages of this issue is the convertability and the discount achieved from that either 5% or could be more if share price exceeds 3.75 so there is a bit of upside as well.
Hit me up if anyone wants some (hope this doesn't breach any rules - probably does oops) -
19-01-2017, 08:54 AMBeagleToo late to get some at par ? Sorry, couldn't resist :DQuote:
Originally Posted by peat
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28-05-2017, 02:57 PMSnoopyI got a miserable single sheet introducing me to the TNRHB bonds when I signed up. But now I find the full bond prospectus is on line.Quote:
Originally Posted by Snoopy
http://www.turnerslimited.co.nz/site...%202016%20.pdf
I don't remember being pointed to this at the time. So I think it is only fair that all TNRHB bond investors should know about it.
SNOOPY -
28-05-2017, 09:52 PMpercy
The code for Turners bonds is now TRAHB.
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29-05-2017, 06:26 PMBeagleThanks Snoopy.Quote:
Originally Posted by Snoopy
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07-09-2017, 06:43 PMSnoopyTRAHB Bond Covenants: IntroductionWhat were TNRHB bonds have now been renamed TRAHB bonds. It is just a name change to reflect the change in name of the parent company. A couple of years back, I made a 'not too persuasive' analysis on how the then 'Turners Limited' (now 'Turners Automotive Group') was doing in sticking to their bond covenants. Now I intend to make a better attempt.Quote:
Originally Posted by Snoopy
I have a problem running these covenant checks. The covenants are clear. But the 'segment reporting' in the annual report may not correspond exactly to the two 'bond prospectus' groupings of:
1/ Non-finance Covenant Group &
2/ Bank Borrower Finance Companies
as listed on page 16 of the bond prospectus (the prospectus that I have previously referenced in post 12). I have assumed that all of the 'bank borrower finance companies' are listed under the 'finance' segment, while 'Automotive Retail', 'Collection Services NZ', 'Collection Services Aus' and 'Insurance' are all lumped into the 'Non-finance Covenant Group'. But I can't be sure of that. Subsidiary 'Southern Finance' was not specifically mentioned as being part of the 'finance' segment as an example.
Next, for covenant calculation purposes, I have to decide how to allocate the corporate head office costs across divisions. There is every reason to suggest the more revenue a division generates, then the more attention that division will require from management. So this is my preferred method of allocating head office costs across the other divisions. This, however, is a 'rule of thumb' that I cannot be assured accurately reflects the real allocation of head office time and resources.
The next problem is working out what the EBITDA figure is for each of the two categories. The company annual interest bill is shared amongst all the divisions of the company. But how is it split up? I have split the interest between segments in proportion to the disclosed liabilities of that segment. The proportion of segment liabilities in relation to the total liabilities determines how the liabilities and hence how the 'interest due for payment' is spread out. To me this seems logical. However, there is no obligation on the company to spread their total interest expense obligations across divisions in this way.
I am discussing this because I would like readers to see there are quite a few assumptions behind an analysis such as this. And therefore quite a few ways that the answers I am deriving can go wrong. Yet this is the fairest way I can think of to make use of the 'segment information' as presented in the annual report for the 'Turners Automotive Group'. So let's get going.
SNOOPY -
07-09-2017, 07:28 PMSnoopyTRAHB Bond Covenant 1: Interest CoverThe standard we are looking for here ( p13 bond prospectus ) is:Quote:
Originally Posted by Snoopy
1/ EBITDA/I > 1.25 ( Bank Borrower Finance Companies: Dorchester Finance Limited and Oxford Finance)
2/ EBITDA/I > 3.00 ( Non-finance Covenant Group )
FY2016 EBIT DA EBITDA I EBITDA/I Pass Test? Finance Segment $14.619m $0.173m $14.792m $4.770m 3.1 >1.25, pass All Other Segments $18.368m $1.971m $20.339m $6.666m 2.8 <3.00, fail Total $32.987m $2.144m $35.131m $11.436m
FY2017 EBIT DA EBITDA I EBITDA/I Pass Test? Finance Segment $13.744m $0.329m $14.073m $3.719m 3.8 >1.25, pass All Other Segments $22.237m $2.534m $24.771m $7.361m 3.3 >3.00, pass Total $35.981m $2.863m $38.844m $11.350m
Eagle eyed bond holders will see that the bonds were issued in August 2016, while FY2016 finished in March 2016. Technically you can't fail a test before the bond is issued. But these TNRHB bonds effectively replaced the TNRHA bonds which had similar covenants. So I think the FY2016 figures are useful for comparative purposes. The 'close fail' of the 'All Other Segments' statistic over FY2016 could have been fixed by allocating more head office costs to the finance division, as an example. Alternatively, because these covenants are subject to renegotiation, TNR could have gained a temporary exemption from their banking syndicate. In any event, nothing was publicised on the subject of TNR/TRA breaking their interest cover covenant at the time. So it must have all worked out
SNOOPY -
08-09-2017, 10:48 AMSnoopyTRAHB Bond Covenant 2: Leverage Ratiop13 of the bond prospectus lists the 'leverage ratio' as being the ratio of:Quote:
Originally Posted by Snoopy
Gross Debt / EBITDA < 2.5
but only in relation to the 'Non Finance Covenant Group'. There appears to be no leverage ratio requirement on the 'Finance' group side of the business. This strikes me as being very odd. I would have thought that the leverage ratio of the finance side of the business would be far more important than the non-finance side. But I will go with it.
Please note that the segmented Gross Debt and EBITDA figures have been adjusted to allow for an appropriate proportion of head office costs.
FY2016 Gross Debt {A} EBITDA {B} 'Gross Debt'/EBITDA {A}/{B} Pass Test? Finance Segment $119.107m $14.792m 8.05 Test not required All Other Segments $232.491m-$119.107m=$113.384m $20.339m 5.57 >2.50, fail Total $232.491m $35.131m
FY2017 Gross Debt {A} EBITDA {B} 'Gross Debt'/EBITDA {A}/{B} Pass Test? Finance Segment $158.647m $14.073m 11.3 Test not required All Other Segments $384.917m-$158.647m=$226.270m $24.771m 9.13 >2.50, fail Total $384.917m $35.131m
Generally test results as far out as these two, would suggest I have made a mistake. However, as yet I can't find it. The only thing that is indisputable is that comparing 'like with like' statistics, TRA had a lot more leverage on the balance sheet at EOFY2017 when compared to a year earlier.
SNOOPY -
08-09-2017, 02:58 PMSnoopyTRAHB Bond Covenant 3: Equity RatioThe 'equity ratio' is defined as: (Net worth) / (Total assets)Quote:
Originally Posted by Snoopy
I am going to assume that 'Net Worth' is equivalent to 'Divisional Shareholder Funds' in this instance.
Once again this statistic is to be applied to the 'Non-Finance Covenant Group'. One again I find this very odd. I would have thought the equity ratio was far more important to the finance side of the business. Further muddying the water is that the standard listed is a minimum of 20% that should be applied to 'Dorchester Finance' and 'Oxford Finance', both of which definitely are finance arms! I don't think this bit of the bond prospectus, as written, even makes sense as it is obviously contradictory. But I shall 'battle on' and see what numbers come out.
Please note that the 'Shareholders Funds' figures have been adjusted to allow for an appropriate proportion of head office costs.
FY2016 Net Worth (Shareholders Funds) {A} Total Assets {B} 'Net Worth'/'Total Assets' {A}/{B} Pass Test? Finance Segment $63.869m $182.975m 34.9% >20%, Pass All Other Segments $129.612m-$63.869m=$65.943m $362.303m-$182.975m=$179.328m 36.8% >20%, Pass Total $129.612m $362.303m
FY2017 Net Worth (Shareholders Funds) {A} Total Assets {B} 'Net Worth'/'Total Assets' {A}/{B} Pass Test? Finance Segment $54.431m $213.078m 25.5% >20%, Pass All Other Segments $171.716m-$54.431m=$117.285m $556.633m-$213.078m=$343.555m 34.1% >20%, Pass Total $171.716m $556.633m
Conclusion? The finance arm is a lot more leveraged than last year. But it is still well within the bounds determined by the banks. So there is nothing for bondholders to worry about here.
SNOOPY -
09-09-2017, 11:16 AMSnoopyTRAHB Bond Covenant 4: Actual Capital Expenditure vs Base Case"In each year , in relation to the 'Non-Finance Covenant Group', capital expenditure is to be no more than 110% of the base case as set out in the annual budget provided to the bank."Quote:
Originally Posted by Snoopy
In essence this looks like a 'no surprises' policy. This is almost impossible to verify though, as we mere shareholders/bondholders have not been briefed on the TRA annual budget. I imagine that if TRA wanted to spend more than their 110% of budgeted capex, a meeting with the bank manager outlining in detail their revised business plan could be negotiated.
On p63 of AR2016 we learn:
"The Group does not currently have any approved capital expenditure commitments at reporting date (2015: nil)."
According to my maths, 110% of 0 is 0. So it follows that Turners must have sought bank approval for the acquisition of 'Buy Right Cars' and 'Autosure' during FY2017. That is hardly surprising, and brings to an end my analysis of this covenant.
SNOOPY -
09-09-2017, 11:39 AMSnoopyTRAHB Bond Covenant 2: Leverage Ratio (further discussion)I guess if anyone is still reading this thread, they might think that I am travelling down a black hole of mindless detail. But actually these covenants have a bearing on whether we bondholders will get our investment capital back at all, should something go 'slightly wrong'. You can bet that if the bank doesn't get all of their capital back in times of distress, then we bondholders will get nothing. So as far as our bond investment is concerned, this discussion is a life or death exercise.Quote:
Originally Posted by Snoopy
I am going to re-run some of these numbers based on the actual numbers listed in the segmented analysis, section 6, of AR2017. This removes all my 'reallocation of costs' assumptions that I have used in this analysis so far. To allow the best possible chance of 'covenant success' we want the numerator, in this case the 'Gross Debt' to be as low as possible and the denominator, in this case EBITDA, to be as high as possible. The 'Gross Debt' can be found from the divisional liabilities and can be summed up as follows:
Non Finance Group Liabilities FY2017 Liabilities FY2016 Automotive Retail $103.821m $62.625m Collection Services NZ $9.246m $13.991m Collection Services Aus $0.890m $1.346m Insurance $66.503m $27.110m Corporate and Other $79.169m $50.668m 'Gross Debt' Total $259.629m $155.740m
The average gross debt across the financial year is therefore:
$259.629m + $155.740m = $207.685m
Non Finance Group EBT FY2017 DA FY2017 I FY2017 EBITDA FY2017 Automotive Retail $15.397m ($2.286m) Collection Services NZ $6.006m ($0.092m) Collection Services Aus $0.239m $0m Insurance $0.928m ($0.091m) Corporate and Other ($8.095m) ($0.065m) Total $14.475m ($2.534m) ($11.350m) $28.359m
Note that i have maximised EBITDA by assuming that the whole company interest bill is paid by the 'Non Finance Group', which IMO is an assumption unlikely to be true.
Now we have the numerator and denominator, we can work out the fraction:
(Gross Debt) / EBITDA = $207.685m / $28.359m = 7.3 > 2.5 (fail)
Because Autosure was not bought until the last day of the financial year, we could assume that the gross debt increase as a result of that purchase was unrepresentative. Assuming gross debt for insurance did not change during the year gives us a lower average gross debt figure of $187.988m.
(Gross Debt) / EBITDA = $187.988m / $28.359m = 6.6 > 2.5 (fail)
Try as I might, and making all sorts of favourable assumptions, I cannot get anywhere near a pass mark on this covenant. I am forced to conclude that our bond capital is at significant risk should trading events not pan out as planned.
SNOOPY -
14-09-2017, 05:18 PMpeat
With respect to the share placement that Turners have now completed in the last few days I have checked the PDS of the bond issue and it says
"the terms of Conversion will be adjusted to ensure Bondholders arenot adversely impacted by any dilution." -
14-09-2017, 05:20 PMwinner69Thanks Peat ...so the $3.75/$3.95 should be less .....if it comes into play as the minimumQuote:
Originally Posted by peat
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14-09-2017, 10:31 PMSnoopyIIRC the bond conversion terms are 'market price less 5%'. Issuing more shares theoretically lowers the market price per share. But the discount remains at 5% from the new market price. So I don't believe the bondholders will be disadvantaged by the latest placement and SPP. Consequently I don't expect any change to the conversion terms of the bonds.Quote:
Originally Posted by winner69
SNOOPY -
16-09-2017, 10:53 AMBeagleAt anything above $3.95 bondholders stand to have their shares issued at a bigger than 5% discount, i.e. the lower of $3.75 or a 5% discount to VWAP.Quote:
Originally Posted by Snoopy
The chances of the shares being higher than $3.95 at the time of conversion have been diluted by this issue so bondholders have indeed been disadvantaged BUT I do not expect the company directors to see it that way. They really are not interested in looking after the interests of small bondholders and shareholders. Anything that funds their growth ambitions and favor larger shareholders in friendly rights issues, no problem for them though. It's looking likely I will simply ask for my cash back at the conclusion of the bond as its quite clear that a $25m capital raise, (which is what a bond conversion ostensibly is) affects the SP going by the SP performance this week. What I am suggesting to be clear is a 5% share conversion discount is insufficient on an illiquid thinly traded share, (market evidence this week shows that a 10% discount is required to raise new capital) with a short track record of profitability. I regret investing in the bonds but will hold to maturity rather than taking a loss now...unless someone wants to offer me $1.05 per bond including accrued interest for the Sept quarter, please PM me. -
23-09-2017, 11:07 AMSnoopyI managed to digest my Share Purchase Plan prospectus yesterday. The entitlement for bondholders is determined by taking the dollar value of the bonds and dividing that by $3.75, thus generating an 'equivalent shareholding' for SPP purchase purposes. As you suspected Beagle, this $3.75 price is unchanged from the bond prospectus dated 22nd August 2016. Except in the bond prospectus, the conversion terms for next year stipulate a $3.75 maximum conversion price, and a lesser price should the TRA share price be below $3.90 at conversion date. Clearly issuing a whole lot more shares at $3.02 today means it is less likely that the share price will be above $3.90 in a year's time. So I think bondholders have lost out here, despite this 'out' below, quoted from p17 of the Bond Prospectus.Quote:
Originally Posted by Beagle
"Turners may issue further Shares from time to time before the Maturity Date of the Bonds, which may negatively affect the Share price. This may reduce the value Bondholders receive on Conversion (but subject to the minimum provided by the discounted approach)."
"The minimum provided by the discounted approach" refers to the minimum 5% discount on new shares issue at maturity that will increase if the share price goes above $3.95 by conversion date. But bondholders would get this discount whether the SPP and placement happened or not. So I think it would be clear to an independent observer that bondholders will be disadvantaged at conversion time, even if they (apparently) have an offsetting opportunity to buy some new shares at $3.02 today, as 'compensation'. I say 'apparently' because my offer to take part in the SPP came because I am also a shareholder. No mention was made of the fact that I am a bondholder as well.
Did any bondholder who is not a shareholder get the SPP offer document?
For what it is worth I have applied for my maximum allowance. I am not sure how many I will get and I am not sure if $3.02 is really a bargain. It will only be a bargain if growth goes according to plan, and that is the risk that all shareholders take.
SNOOPY -
23-09-2017, 11:33 AMblackcapYes, my partner who is only a bondholder got a SPP offer document. She has applied for shares at $3.02.Quote:
Originally Posted by Snoopy
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26-09-2017, 11:07 AMpeat
I've made an official inquiry on whether there will be an adjustment to the 'strike price'
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27-09-2017, 10:11 AMBeagle
Thanks Snoopy and peat. Yes I got an offer to apply for shares even though I am just a dissatisfied bondholder. The companies veracious appetite for new capital concerns me as does the depth of the discount required to get it. The 5% discount bondholders will "enjoy" if they choose to convert to shares next year does not appear to be sufficient if they're having to resort to issuing new capital at a 10% discount now. Those who do convert their bonds to shares next September are playing Russian roulette if their goal is to sell these very illiquid shares and try and work the 5% discount to their advantage.
I feel the same way about the present apparent 5% discount ($3.20 current SP compared to $3.02 SPP) especially while we play flip the coin with which way Winston Peter's will jump. I think a left wing coalition with him the Greens and Labour could seriously undermine business confidence going forward. My sense is TRA have enough of my capital already and I am underwhelmed with how I am being treated as a bondholder in regard to conversion terms, the EPS growth and the discount on possible conversion of bonds is with hindsight, materially insufficient. I will decide at the time but its looking almost certain I will simply ask for my money back at the end of the convertible note term. No interest from me in the SPP for the shares at $3.02. I see far better value elsewhere.
Colonial Motors are trading at a material PE discount and have an outstanding history of providing solid returns to shareholders over their 99 year history. I guess I just prefer strong stable companies that have been around for a really long time and weathered all sorts of financial conditions including the GFC. There's something about that sort of long history and solidity that really appeals to me. -
27-09-2017, 11:03 AMpeat
The official answer is that there is no adjustment to the $3.75 figure.
Colleagues consider this immaterial, I am not sure.
But a strict reading of the PDS allows for it
I had read this :
Turners may issue further Shares from time to time before the Maturity Date of the Bonds, which may negatively affect the Share price. This may reduce the value Bondholders receive on Conversion (but subject to the minimum provided by the discounted approach). As described below, in the case of an issue of Shares to Shareholders, the terms of Conversion will be adjusted to ensure Bondholders are not adversely impacted by any dilution.
But, there is also this
If, prior to the Maturity Date, Turners issues any Shares or other instruments to its Shareholders byway of capitalisation of profits, reserves or otherwise (other than pursuant to a dividend reinvestmentplan or share purchase plan) the terms of Conversion will be adjusted to ensure Bondholders are notadversely impacted by any dilution. Turners and the Supervisor shall agree on the adjustment and ifthey are unable to agree, the Supervisor will appoint an independent adviser, approved by Turners, tomake the determination. -
27-09-2017, 11:52 AMwinner69Thanks PeatQuote:
Originally Posted by peat
First paragraph says maybe ....but second says NO (as a SPP)
Immaterial - dilution was about 10 million shares on top of 74 million shares - quite a lot I reckon. The $3.75 would be reduced to about $3.26 (my calc) in theory to keep things fair (?)
If second paragraph is the gospel according to Turners then have we been 'screwed'? -
27-09-2017, 11:59 AMBeagleNo question whatsoever that bondholders have been materially disadvantaged.Quote:
Originally Posted by winner69
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27-09-2017, 02:18 PMSnoopyThe counterpoint is that:Quote:
Originally Posted by Beagle
1/ Bondholders have been offered the wonderful chance of buying some new 'extra' TRA shares at $3.02, something that wasn't envisaged at bond issue time. AND
2/ Come the time when the bonds are due to mature, in a years time, those extra shares that you bought at $3.02 will be shown to have been issued at a wonderful discount to the expected $3.75 conversion price for shares at bond maturity. WHILE
3/ Bondholders have collected stellar 6.5% gross interest for the two years they had the privilege of holding those TRAHB bonds.
"A real win-win-win for bondholders!"
Or from the perspective of the other Beagle who doesn't consider $3.02 cheap and doesn't consider a 6.5% gross bond return adequate for the risk taken:
"A real whine-whine-whine for bondholders!"
The difference between the two points of view is confidence. You have to be confident that management will continue to do what they say they will do. If you are confident, then all puffed up risks disappear. Simple. ;-P
SNOOPY -
27-09-2017, 03:48 PMBeagle
New Zealand shareholders association were deeply unimpressed with how quickly the issue was done and the methodology used. Behind the paywall article on NBR questioned what was the rush and said no satisfactory explanation had been forthcoming.
My point is that I shouldn't have to throw them more bones to compensate for the fact that the conversion terms on the ones I've already leant them have become less attractive.
How do you have confidence in a company that waters down the terms of the deal you already have with them ? Why would you give them more capital to play with when they don't play fair with the money you've already loaned them ? This issue waters down the chances of the bonds being in the money at conversion date, that's in plain sight for anyone thinking objectively about this and disregarding the specific terms and idiosyncrasies of the bond offer document is a direct violation of the principle's of natural justice of the bondholders.
There is no way I will do further business with a company that conducts itself in that manner. I look forward to asking for my bondholder money to be redeemed in cash on conversion date. -
27-09-2017, 04:53 PMpercyI am sure other bond holders will feel the same way.Quote:
Originally Posted by Beagle
It is in TRA's interest to have happy bond holders,who will continue to support future larger issues.
The trust I help out on holds both TRAHBs and TRA shares.They are held in Hobson Wealth "custodial services".We have instructed them to apply for $15,000 spp via TRAHBs and $15,000 via TRA's.Be interesting to see if we get both.?
It will be interesting to compare the "full" returns from holding TRAHBs compared with other bonds the trust holds,when the TRAHB's mature.At least at that time, the trust will have the option to take cash or shares.
PS.Bit early, but I posted the wife's and mine cheques away today for the SPP.Applying for the full amount for both of us. -
27-09-2017, 06:29 PMblackcapHi Beagle,Quote:
Originally Posted by Beagle
If you had done some serious due diligence you will see that TRA when they were DPC have previously in the opinion of some "shafted" bond holders. The DPC010's (I think from memory were called 010's) were repurchased at below par or something like that..... I do not have all the details at hand but I know that a colleauge sold DPCOB's to purchase bonds and was ropable when the options shot up and the bonds went down because of the actions of DPC. -
27-09-2017, 07:04 PMpercyWas this before WW1 or WW11 ?Quote:
Originally Posted by blackcap
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27-09-2017, 07:11 PMSnoopy'The SPP issue and placement' waters down the chance to buy shares at a 'super discounted' price, should the TRA share price at the conversion date be more than $3.95 (triggering the $3.75 conversion price ceiling). But it doesn't water down the chance of the bonds being 'in the money'. Because the offer to purchase shares using the bond money at bond maturity still stands. And those shares will still be issued at a 5% discount to the prevailing share price, whatever that price may be. The lower the prevailing share price at bond maturity time, the more shares the bondholder gets. Granted most of that 5% discount would evaporate if the bondholder wanted to sell their newly acquired shares in a hurry. But why would they want to do that, when the option exists for a full cash repayment of the bond at face value?Quote:
Originally Posted by Beagle
There is one more benefit for bondholders that deserves a mention. That is the opportunity to get in on the ground floor for a helping of new TRAHC bonds should Turners see fit to issue such a thing. I am betting TRAHC bonds will be a reality.
SNOOPY -
27-09-2017, 09:43 PMblackcapYeah about 2012, 2013 or thereabouts.... :)Quote:
Originally Posted by percy
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27-09-2017, 10:00 PMpercySo well before TRA days.Quote:
Originally Posted by blackcap
In late 2013 the present directors took control of DPC and had a lot of cleaning up to do.
In fact DPC only survived because they fronted up.
Come a long way since they took control. -
28-09-2017, 07:16 AMblackcapCorrect, and DPC survived because they did front up. I just know that at the time it was not all kosher in the eyes of a few what happened. They did not need to do what they did. Some of the directors that were there then are still here now. Not saying they are implicit, just stating let the buyer beware. I know back then too the actions did wonders for the share price, it was bond holders who felt disadvantaged. As a shareholder myself I was not concerned. However my friend who had sold his shares (options) to buy the "less risky" bonds (to keep the same $ investment in DPC) felt he lost a lot of money and we are talking in the $100,000's here. So he was mightily ropable.Quote:
Originally Posted by percy
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28-09-2017, 09:08 AMBeagleYou need a super discount if you can call it that for any new shares on bond conversion to be in the money if recent market evidence is reliable. Shares were $3.40 or thereabouts for quite a while and are now $3.20 or thereabouts which is a 6% SP decrease through the current capital raise and we're not done yet. There's also the chance more shareholders will sell in the next few days to fund their SPP entitlement and more selling after the SPP shares are issued as some shareholders look to work the arbitrage between the current SP and $3.02.Quote:
Originally Posted by Snoopy
I agree 100% that the likelihood of a new issue of TRAHC is extremely high and as you quite rightly point out the current bonds confer preference on a future issue of same, (for whatever that's worth) which in light of the history that Blackcap has kindly reminded me of, it would appear to be very little.
Get bitten once through lack of deep research is one thing but to expose yourself to being treated inequitably a second time, that's one's own fault. Any way you slice and dice this bondholders are being treated inequitably. The premium to par the bonds have been trading at has vanished and that is clear market evidence that bondholders prospects for a capital gain on conversion has sharply diminished. I will take the 6.5% return and while I won't absolutely commit to a course of action at this stage, at this point I am strongly inclined towards investing elsewhere next September. 9% EPS growth this year, (even if achieved) doesn't overwhelm me with enthusiasm.
Thanks mate, appreciate your background reminder on their darker historical days. Makes another motor vehicle company's 99 year solid history look even more compelling by comparison doesn't it !Quote:
Originally Posted by blackcap
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28-09-2017, 10:01 AMpercy
[QUOTE=
Thanks mate, appreciate your background reminder on their darker historical days. Makes another motor vehicle company's 99 year solid history look even more compelling by comparison doesn't it ![/QUOTE]
Your "pure angel" had some very dark history that I know about in the 1960s,and some very funny dark stories were told of the 30s,40s and 50s..And those were at just one of the reputable dealerships.!!
Don't go there.!..lol. -
28-09-2017, 10:07 AMblackcapNo worries, but I must add a disclaimer that I too hold TRA bonds (well my partner does but I do the decision making there) and TRA shares. Bit disappointed that they are not changing the terms but sorta expected that too. Still think the shares will do very well in the coming years and happy to be a holder and topping up at $3.02.Quote:
Originally Posted by Beagle
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07-06-2018, 09:28 PMSnoopy
Below is a straight copy of a most of mine on the TRA 'equity' thread. I think it is significant enough to be a 'must read' for bondholders.
OK, the fact that Turners are last on the waterfall to get the rewards of the Securitization but first on the waterfall to absorb the losses of the Securitization makes much more sense. Thanks.Quote:
Originally Posted by Fox
In the March 2018 newsletter (p1), Turners are looking to extend their securitization facility in the future to $250m.Quote:
The bonds referred to were the TRAHB sub notes of $25m that are held as security over the trust. These, along with other assets, provide that buffer to absorb any potential credit losses before BNZ up to the agreed upon 8% contribution by Turner's.
8% of $250m is $20m.
There are just over $25m of TNRHB bonds outstanding. So there are more than enough bonds to satisfy the Turners Automotive Group Guarantee (amounting to 8% of the securitized loan balance) of the 'Turners Marque Warehouse Trust 1' (the loan securitization entity).
However the quantum of current loans securitised at EOFY2018 balance date has not yet been disclosed. As at the half year it was $117m. So it seems not all of the TNRHA bond capital is required to guarantee the securitised loans.
I had another look at the bond prospectus and found this quote on p21
"The Turners Group’s primary finance activities include the Bank Borrower Finance Companies which rely on borrowers to repay their loans and make interest payments on due date. The Bank Borrower Finance Companies take security over assets to secure most of the loans they make. However if a borrower fails to repay the loan on its due date and the value of the secured asset (if the loan is secured) and/or the amount recovered under any guarantee is insufficient to cover the outstanding payments, the relevant Bank Borrower Finance Company will make a loss on that loan (credit risk). If this occurs in relation to a significant number of loans, Turners may default with its lenders (including Bondholders)."
From what Fox is saying, it seems that as the quantum of organized loans goes up so does the quantum of TNRHB bonds tied to supporting those loans. So rather than TNRHB bonds being used as 'general loan capital' to support the wider activity of the group, we are heading for a situation where the TNRHB bonds support securitized car loans only. Thus it appears to me that the underlying risk profile of the TNRHB bonds is changing over time. It does look to me as though they have become riskier!
SNOOPY -
07-06-2018, 10:51 PMpeat
certainly their price has decreased to reflect some change in their value
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08-06-2018, 08:41 AMSnoopyAs a TNRHB bondholder myself I am not worried. The chance of a serious downturn in the second hand vehicle market between now and the end of September 2018, when the TNRHB bonds mature, I believe, is low. But if these Turners TNRHB bonds are replaced by TNRHC bonds, something which I believe is likely, then I think the 'capital risk' for those new bondholders is a non trivial risk that definitely should be considered.Quote:
Originally Posted by peat
If the current interest rate of 6.5% is carried over, this is not out of line with Turners declared 'interest margin' of near 9%. After all, Turners have to gather the loans scrutinise the people they loan to source the cars that the loans are written for - all stuff that bondholders don't have to deal with. But if you look at the Turners finance division on its own (not the whole company) then the interest margin rises to some 16%. So I would have to think hard whether any such bond return offered is a fair slice of the pie, given the capital risk on the block.
If:
1/ Turners achieve their goal of $250m in syndicated loans AND
2/ the bond pool remains at $25m THEN
3/ $20m of those bonds become subject to securitized loan default risk.
It appears that Turners bond holders will be first in line for being hit by any market risk fall out. This means an 8% fall in the overall loan securitized portfolio value will result in a ($20m/$25m =) an 80% loss of capital by bond holders and the end of interest payments. That would be a worst case scenario. But even a 2% decline in the value of the securitized loan portfolio combined with an associated default in loan repayments would result in a 20% loss of capital for bondholders. That is a 'non-trivial' loss.
We don't yet know what the TNRHC bond rate offered will be. But I would have to think carefully whether receiving about 40% of the interest income from any loan deal, while shouldering most of the capital risk of a market downturn, is a deal worth taking up.
SNOOPY -
08-06-2018, 09:11 AMSnoopyWith all bond investments, I think it is worthwhile stacking them up against the alternative of putting the same money into the head share. The historical dividend yield for TNR shares over the payouts relating FY2018 will soon be:Quote:
Originally Posted by Snoopy
(3.0c + 3.0c + 4.5c +5.0c) / 302 = 5.13% (net), or 5.13%/0.72 = 7.1% (gross)
If the TNRHC bonds are rolled over at 6.5% and retain their 'share conversion option' value after two years then in my expectation:
1/ Bondholders will have a lower expected gross return than shareholders.
2/ Bondholders will be taking a higher capital risk than shareholders.
3/ Bondholders will likely have a greater liquidity risk than shareholders BUT
4/ If the TNR share price goes down over the two year bond period then bondholders will have an opportunity to buy TNR shares in the future at a discount to today's price.
Given 1/ 2/ and 3/, I would have to conclude that a 6.5% interest rate would be insufficient to interest me in taking up potential TNRHC bonds. However I do note that with the full year result announcement:
"The company is also in the process of re-negotiating pool parameters with BNZ on the Securitisation Warehouse."
If:
1/ the securitisation terms for bondholders become more favourable OR
2/ the bond interest rate offered increases OR
3/ the share price increases, so reducing this alternative investment's gross yield
THEN my assessment could change.
SNOOPY -
08-06-2018, 10:36 AMh2so4
It seems that investing in TNRHC bonds is not straightforward.
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08-06-2018, 12:40 PMSnoopyI would say investing in any bond is far from straightforward. Yet some who invest with great investment rigour with shares are often content to toss money into a bond with the belief that management will almost certainly look after them, and with little thought to what might happen to the company to allow it to pay:Quote:
Originally Posted by h2so4
1/ A return on your money AND
2/ The return of your capital intact.
I admit to being guilty of this in the past myself. But I am now very wary of a coming bond market correction. I reckon it is actually harder work to truly get an appropriate return on a bond investment than it is to get an appropriate return on your shares, and neither is easy money!
SNOOPY -
08-06-2018, 06:44 PMBeagle
Currently the current issue of bonds present as something of an opportunity if you can nab some, (hounded some up at $1.01 this week, not enough really).
Currently trade cum this June quarters interest payment of 1.625 cps and these mature on 30 September 2018 and are convertible for shares at a 5% discount to the 90 day VWAP leading up to conversion date or you can ask for the cash back or get preferential rights to a replacement bond issue, if any. Those looking to add to their shareholding but unsure on timing and whether they'll get timing right can buy at a 5% discount to the 90 day VWAP and effectively de-risk the timing of the entry.
If anyone would like to sell me some more at $1.01 please PM me. I'd love to hear from you and am all ears like a Basset hound :) -
11-06-2018, 09:25 AMwinner69
Snoops ...are you sure thatbthe current listed Turners bonds have anything to do with the securisatation thing.
It seems that the other ‘bonds’ we are talking about (the 8%) are notes issued by the Trust to ‘buy’ the debt from Turners
Then I might be completely wrong -
11-06-2018, 10:30 PMSnoopyNo I am not sure Winner. I am going by Fox's post on the TRA share thread which 'sounds' the most plausible explanation I have read so far.Quote:
Originally Posted by winner69
Fox wrote p2358 on the TRA share thread:
-------
The distribution from the trust to Turner's has the lowest seniority after the more senior tranches are paid first. The reverse occurs for credit losses as well, any bad debts or impairments are covered by the lowest tranches first i.e. Turner's, then any remainder credit losses beyond that tranche are shared with the next tranche i.e. BNZ. This is why the finance receivables are still reported on the Group's balance sheet as they still retain the substantial risks and rewards of those loans.
The bonds referred to were the TRAHB sub notes of $25m that are held as security over the trust. These, along with other assets, provide that buffer to absorb any potential credit losses before BNZ up to the agreed upon 8% contribution by Turner's.
------
Fox sounded fairly sure of his facts.
My question to you Winner is that, if you are correct and the Trust issued notes to 'buy' the debt from Turners, why has there been no mention of these 'other' bonds in any announcement from Turners? I realise the trust is a separate legal entity from TRA. But TRA still carries the substantial risk from the trust. So just as the Trust receivables cannot presently be deconsolidated from the TRA results, I would expect the existence of any other bonds, including any issued by the trust, to be disclosed by TRA.
SNOOPY -
13-06-2018, 02:59 PMwinner69
I don’t really know Snoops ...just the way the SPV structure is outlined suggests the Trust issues some form of ‘Note’ to finance the purchases of the Receivables.
Maybe Fox was trying to explain too many things at once and we all got confused -
13-06-2018, 06:04 PMpercy
Don't muck around.
Ring TRA's CFO Aaron Saunders [09] 308 4950 and get the correct answers. -
15-06-2018, 07:39 AMEnjay
Percy might be onto something there - hard to read into these types of debt / capital structures from the balance sheet sometimes.
Those bigger auto finance companies often use bankruptcy remote trust structures to raise capital and shuffle legal title / risk / assets to make those finances look better.
Be curious to know how TRA approaches it. -
15-06-2018, 08:19 AMSnoopyWelcome to the forum Enjay. The TNRHB bond issue has only 2.5 months to run. If it is replaced by a TNRHC bond issue (and that is an if) then that bond issue will have its own prospectus outlining underlying risks, and that should answer some of these questions. TRA are on record as saying they are re-examining the financial arrangements underlying the securitization of loans. Personally I am prepared to wait for them to do this, and ask any questions at that point.Quote:
Originally Posted by Enjay
Percy is a great investment enthusiast and has a penchant for going straight to the top. Personally I have found a carefully worded e-mail to investor relations gets me the answers I want. Not saying one approach is necessarily better than the other.
SNOOPY -
15-06-2018, 08:45 PMEnjay
Thanks for the welcome, Snoopy. Long time observer, first-time poster.
Also a TRAHB holder. For the benefit of others, TRA was very receptive to a web query. Mr Saunders himself replied. I had an issue with TRAHB bond registration. Mr Saunders arranged a waiver with Computershare specifically for a one transaction registration. Beyond impressed with the level of responsiveness.
Agree on the asking questions of future debt funding structures. Wonder if bonds with high yield are enough to entice capital without conversion / dilution options. Market certainly didn't behave anywhere near to what the issuer expected with that $3.75 conversion target! -
04-09-2018, 11:11 AMSnoopyThe TRAHC bond is a realityQuote:
Originally Posted by Snoopy
https://www.turnersautogroup.co.nz/s...ust%202018.pdf
There are three principal differences to the outgoing bond.
1/ The interest rate has been reduced from 6.5% to 5.5%.
2/ The bond term is now for three years not two years.
3/ There is no option to convert to shares at the end of the bond term.
There are other smaller differences. The ranking diagram in terms of who gets repaid first shows that the bonds now rank behind the 'securitized loans' for repayment as well as the 'bank facilities'. It is true that Turners have been replacing some of those straight bank loans with packaged securitized loans. But the facts are the indicative loans to be repaid before bondholders are repaid totalled $169.221m two years ago. Now that figure is $363.913m (up 214%). It is also true that shareholder equity increased from $139.812m to $233.494m (up 167%) over the same period. So although the relative default risk of bonds has increased, the risk has increased by some 30%, not 214%!
Another change is to the 'Interest Coverage Ratio' (being the ratio of EBITDA to Total Interest) tested at the end of each quarter that needs to be kept.
TRAHB Bonds TRAHC Bonds TRA Non-Finance Covenant Group (*): EBITDA/I ratio 3.00 times Dorchester Finance Limited: EBITDA/I ratio 1.25 times Oxford Finance Limited: EBITDA/I ratio 1.25 times Turners and the Guarantors: EBITDA/I ratio 2.00 times
(*)The Non-Finance Covenant Group is Turners, Dorchester Turners Limited, Buy Right Cars(2016) Limited, Dorchester Life Trustees Limited, Buy Right Cars (2016) Limited, Dorchester Life Trustees Limited, DPL Insurance Limited, Emerald Gisborne Property Trust Management Limited (expected to be wound up), EC Credit Control (NZ) Limited, EC Credit Control (Aust) Pty Limited, Estate Management Services Limited, Payment management Services Limited, EC Web Services Limited, Dorchester RAMS Limited, Turners Group NZ Limited, Smart Group Services Limited, Turners Fleet Limited , Turners International Holding Limited, Turners Property Holdings Limited and Turners Smart Autocentre Limited. It does not include the bank borrowing companies Dorchester Oxford Limited, Turners Finance Limited and Southern Finance Limited.
I know that Turners are in the process of consolidating all their financial lending operations. This change may reflect just that. But the previous covenant arrangement specifically excluded the bank borrowing companies from the at 3.0 to 1 rate and put them on a ratio of 1.25 to 1. The finance operations companies contribute around 50% of earnings now. So if we used the 'old' covenant system we might expect an overall EBITDA/I ratio of (3+1.25)/2 = 2.125. My interpretation is that Turners is now on a slightly tighter leash. I wonder if that is related to the extra capital risk that Turners is taking by selling more of their loans as securitised loan packages back to the parent banks?
Personally the lower interest rate return, loss of the conversion option and the fact that the dividend yield on the head shares is now a good match for the fixed interest yield has put me off these bonds. It looks to me like buying the bonds retains the downside risk of the shares if the business goes sour but gives up any upside risk that a holding in the head shares will give you. To me, the head shares are now the more balanced risk investment option. But I am a hard mutt to please. This was my only bond market investment of any kind in my investment portfolio. I don't see myself returning to buy any bond in any company while interest rates remain so low.
SNOOPY
PS I notice this bond prospectus is being promoted by FNZC and the ANZ Bank, whereas with the last bond on more attractive terms no external promotion was required. I wonder if all that promotion will be needed this time? -
04-09-2018, 04:58 PMBeagle
Thanks Snoopy, really appreciate your analysis. Terms unattractive for this mutt too. If the shares pay 16.5 cps in fully imputed dividends this year (16.5 / 0.72) = 22.92 cps gross that's a 7.85% gross dividend yield at $2.92, significantly better than the 5.5% offered by the bonds.
Of course if the shares keep performing like a mange and flea infested pig dog the shareholders might have wished they were bondholders. -
04-10-2018, 12:33 PMSnoopyI guessed the name of the new bond incorrectly. If will be called 'TRA100'.Quote:
Originally Posted by Snoopy
$25.0 million is the size of the new TRA100 bond pot. That is interesting because there was the stated ability to accept up to $5m in oversubscriptions, an option that was not taken up by Turner's management. Was it a hard sell? I saw no mention of allocations being scaled back. I wonder if those of you who applied on this forum got the full allocation they applied for? I see of the monies received, $20.2 million or 81% is from new holders. Or conversely only 19% was received from the old holders! That is a pretty poor rollover rate. I discussed this bond offer with a broker. The purpose was the possible take up of some for an elderly relative. The response? The broker did not like it for this situation. Said it was too deeply subordinated and only one step away from holding equity. Out of interest this broker works for FCNZ, the promoters of the bond! FCNZ and ANZ ended up filling the originally planned $20m capital sought though. No doubt to different investor horses running on other courses!Quote:
PS I notice this bond prospectus is being promoted by FNZC and the ANZ Bank, whereas with the last bond on more attractive terms no external promotion was required. I wonder if all that promotion will be needed this time?
SNOOPY -
05-10-2018, 09:02 AMwinner69
Would need to create a special chart for Turners
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25-08-2019, 09:24 PMSnoopyQuote:
Originally Posted by Snoopy
Almost a year on Beagle and the only statement of sense we made without the benefit of hindsight is your 'pig dog' behaviour and consequences that came to pass.Quote:
Originally Posted by Beagle
Total dividends from the head shares were ahead of your expectation at 17cps. But the share price on Friday was down to $2.33. So we are talking about an historical gross yield of:
17/ (233 x 0.72) = 10.1%
Meanwhile the TRA100 bonds last traded on a yield of just 4%. That would be a capital gain for original bondholders of:
5.5/4 = 37.5%
Talk about backing the wrong horse! Congratulations to the original TRA100 bondholders, although good luck with cashing out your profits. The market liquidity for those bonds looks microscopic.
I can't make the numbers add up as a buyer at 4% though. You would be buying the $1 face value bonds for $1.375. Then even if you bought early enough to pocket all three annual interest payments your total income in two and a bit years would be just:
5.5c + 5.5c + 5.5c = 16.5c (gross), or 11.88c (net)
Yet the capital you would lose on the bonds when they are redeemed in two years time would be 37.5c on every dollar. So it looks like those buying the bonds at a 4% yield are guaranteed to lose a net 25.5c on each and every bond they hold bought at that price. What am I missing?
SNOOPY -
25-08-2019, 11:10 PMSnow LeopardAttachment 10731Quote:
Originally Posted by Snoopy
Buy $100 face value of bonds for $103.862 (see piccy above).
Receive 9 quarterly payments of $1.375, a gain of $12.375
Receive $100 back on redemption, a loss of $3.862
Net gain over two and bit years = $8.51
Which is approximately 4.0% on your outlay. -
26-08-2019, 07:46 AMpercy
So investors who brought in a face value would have received $12.375
or approx 6.18%. -
26-08-2019, 08:48 AMSnoopyNo, I don't think so. That $12.375 you highlight is future contracted income that is yet to be paid, not income already received.Quote:
Originally Posted by percy
A 5.5% coupon rate means that for each $100 invested, bondholders receive $5.50 per year. But the payments are made quarterly. So each quarterly payment is:
$5.50 / 4 = $1.375
The bonds have a duration of three years. That makes twelve quarterly payments in total. If only three of those payments have already been made, then bondholders have received:
3 x $1.375 = $4.125
If bondholders were to cash out now, prior to the entitlement date for their fourth annual interest payment, they would make a capital gain of:
$103.862 - $100 = $3.862
So the total return for each $100 held by 'a bondholder' who bought on day 1 would be:
$4.125 + $3.862 = $7.987
And that equates to a return of just short of 8% (gross)! Hopefully my 'morning maths' is a bit better than my 'late night maths' ;-P
SNOOPY -
26-08-2019, 09:08 AMSnoopyAh thank you my white furred friend. 'Well spotted' (pun intended) ;-)Quote:
Originally Posted by Snow Leopard
So that 4% yield figure quoted, actually represents a 'wash up' calculation with all bond payments to maturity taken into account. I see now.
SNOOPY