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  1. #46
    Legend
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    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 08:44 AM.
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  2. #47
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    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 09:46 AM.
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  3. #48
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    It seems that investing in TNRHC bonds is not straightforward.
    h2

  4. #49
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    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
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  5. #50
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    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 06:46 PM.
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  6. #51
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    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
    The bullish case is always most compelling on the highs.

  7. #52
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    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 10:40 PM.
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  8. #53
    An awesome cool cat winner69's Avatar
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    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
    The bullish case is always most compelling on the highs.

  9. #54
    percy
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    Don't muck around.
    Ring TRA's CFO Aaron Saunders [09] 308 4950 and get the correct answers.

  10. #55
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    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
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    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
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    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!

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