Turners (TNR) bonds

[Beagle]

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)

Too late to get some at par ? Sorry, couldn't resist

[Snoopy]

Now in effect the bonds are being reincarnated as TNRHB, but with a much lower 6.5% interest rate.

I 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.

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

[Beagle]

I 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.

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

Thanks Snoopy.

[peat]

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.

[winner69]

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.

Thanks 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'?

[Beagle]

Thanks 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'?

No question whatsoever that bondholders have been materially disadvantaged.

[peat]

I've made an official inquiry on whether there will be an adjustment to the 'strike price'

[percy]

The code for Turners bonds is now TRAHB.

[Beagle]

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.

[Snoopy]

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.

My apologies for the confusion, 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.

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.

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.

In the March 2018 newsletter (p1), Turners are looking to extend their securitization facility in the future to $250m.

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