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  1. #41
    ShareTrader Legend Beagle's Avatar
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    Quote Originally Posted by Snoopy View Post
    '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?

    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
    You 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.

    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.

    Quote Originally Posted by blackcap View Post
    Correct, 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.
    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 !
    Last edited by Beagle; 28-09-2017 at 08:16 AM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
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  2. #42
    percy
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    [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.
    Last edited by percy; 28-09-2017 at 09:05 AM.

  3. #43
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    Quote Originally Posted by Beagle View Post
    You 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.

    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 !
    No 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.

  4. #44
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    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.

    Quote Originally Posted by Fox View Post
    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
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  5. #45
    Legend peat's Avatar
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    certainly their price has decreased to reflect some change in their value

  6. #46
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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 07:44 AM.
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  7. #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 08:46 AM.
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  8. #48
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    It seems that investing in TNRHC bonds is not straightforward.
    h2

  9. #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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  10. #50
    ShareTrader Legend Beagle's Avatar
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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 05:46 PM.
    Ecclesiastes 11:2: “Divide your portion to seven, or even to eight, for you do not know what misfortune may occur on the earth.
    Ben Graham - In the short run the market is a voting machine but in the long run the market is a weighing machine

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