sharetrader
Page 4 of 5 FirstFirst 12345 LastLast
Results 46 to 60 of 61
  1. #46
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by peat View Post
    certainly their price has decreased to reflect some change in their value.
    As 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.

    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
    Last edited by Snoopy; 08-06-2018 at 07:44 AM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  2. #47
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by Snoopy View Post
    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.
    With 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:

    (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
    Last edited by Snoopy; 08-06-2018 at 08:46 AM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  3. #48
    Super Investor
    Join Date
    Feb 2008
    Location
    Gold Coast
    Posts
    1,387

    Default

    It seems that investing in TNRHC bonds is not straightforward.
    h2

  4. #49
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by h2so4 View Post
    It seems that investing in TNRHC bonds is not straightforward.
    I 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:

    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
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  5. #50
    Gnawing on Bones Beagle's Avatar
    Join Date
    Jul 2010
    Location
    Auckland
    Posts
    10,821

    Default

    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
    Last edited by Beagle; 08-06-2018 at 05:46 PM.
    No butts, hold no mutts, (unless they're the furry variety).

  6. #51
    An Awesome Cool Cat winner69's Avatar
    Join Date
    Jun 2001
    Location
    , , .
    Posts
    21,302

    Default

    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
    “I know that I am intelligent, because I know that I know nothing “ — Socrates

  7. #52
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by winner69 View Post
    Snoops ...are you sure that the 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
    No 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.

    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
    Last edited by Snoopy; 11-06-2018 at 09:40 PM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  8. #53
    An Awesome Cool Cat winner69's Avatar
    Join Date
    Jun 2001
    Location
    , , .
    Posts
    21,302

    Default

    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
    “I know that I am intelligent, because I know that I know nothing “ — Socrates

  9. #54
    percy
    Join Date
    Oct 2009
    Location
    christchurch
    Posts
    11,733

    Default

    Don't muck around.
    Ring TRA's CFO Aaron Saunders [09] 308 4950 and get the correct answers.

  10. #55
    Junior Member
    Join Date
    Jun 2018
    Posts
    14

    Default

    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.

  11. #56
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by Enjay View Post
    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.
    Welcome 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.

    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
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  12. #57
    Junior Member
    Join Date
    Jun 2018
    Posts
    14

    Default

    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!

  13. #58
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by Snoopy View Post
    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.
    The TRAHC bond is a reality

    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 ecompanies 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 secutitised 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?
    Last edited by Snoopy; 04-09-2018 at 11:15 AM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

  14. #59
    Gnawing on Bones Beagle's Avatar
    Join Date
    Jul 2010
    Location
    Auckland
    Posts
    10,821

    Default

    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.
    Last edited by Beagle; 04-09-2018 at 04:29 PM.
    No butts, hold no mutts, (unless they're the furry variety).

  15. #60
    Legend
    Join Date
    Jun 2004
    Location
    , , New Zealand.
    Posts
    5,793

    Default

    Quote Originally Posted by Snoopy View Post
    The TRAHC bond is a reality
    I guessed the name of the new bond incorrectly. If will be called 'TRA100'.

    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?
    $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 courses1

    SNOOPY
    Last edited by Snoopy; 04-10-2018 at 11:45 AM.
    Management top tip: Share the responsibility. Change your name by deed-poll to "Someone Else"

Bookmarks

Posting Permissions

  • You may not post new threads
  • You may not post replies
  • You may not post attachments
  • You may not edit your posts
  •