Caxton FX 7.25% Fixed Rate Bond

jhnplmr

I see that Caxton are offering a 4 year fixed rate bond at 7.25% gross. I understand from ringing their registrars that there is no protection under the FSCS scheme. An extract is shown below:


"The Caxton FX Bond is a non-convertible non-transferable four-year initial fixed term investment of between £2,000 and £50,000 per bondholder, which will offer bondholders a 7.25% (gross) annual return on their investment.

• Subscriptions of a minimum of £2,000 and thereafter in multiples of £1,000 – maximum investment £50,000
• 4 year initial term – the Caxton FX Bond maybe redeemed in full upon the Bondholder giving 6 months notice prior to the fourth anniversary or any subsequent anniversary
• 7.25% (gross) per annum – interest paid every 6 months "

It seems a very attractive return, any comments?

DotMatrix

I'm also opening a bank and can offer 15% on deposits. I also can't offer compensation. Would you invest with me?

Avoid at all costs !!

DotMatrix

Anyone care to state Caxton's credit rating? Is there such a thing as a sub-junk rating at all?

Reaper

Can't say it apeals much to me. Sounds like a corporate bond but unlike most of them it can't be placed in an ISA, so you will have to pay income tax on it.

gadgetmind

jhnplmr wrote: »

It seems a very attractive return, any comments?

Bond yields depend on the risk element. If Caxton FX go under, you lose everything. Risk versus reward!

There are even higher yields around if you have the appetite for risk.

TerryMates

jhnplmr wrote: »

I see that Caxton are offering a 4 year fixed rate bond at 7.25% gross. I understand from ringing their registrars that there is no protection under the FSCS scheme. An extract is shown below:





"The Caxton FX Bond is a non-convertible non-transferable four-year initial fixed term investment of between £2,000 and £50,000 per bondholder, which will offer bondholders a 7.25% (gross) annual return on their investment.

• Subscriptions of a minimum of £2,000 and thereafter in multiples of £1,000 – maximum investment £50,000
• 4 year initial term – the Caxton FX Bond maybe redeemed in full upon the Bondholder giving 6 months notice prior to the fourth anniversary or any subsequent anniversary
• 7.25% (gross) per annum – interest paid every 6 months "

It seems a very attractive return, any comments?

It’s surprising to see a small private company market themselves in this way.

You can get 5% on fixed term accounts with major financial institutions with no capital at risk, and fully backed by the FSCS. This offer from Caxton FX is entirely unsecured and the company has very low assets (just over £1m) and inconsistent financial performance. [TEXT DELETED BY FORUM TEAM]. Last year saw better turnover but gross margins declined sharply (albeit they made a reasonable profit for the first time in years). The company appears to be reserving the right to pay back the bond at any time. In other words as soon as your money is no longer needed they could decide to pay you back and you don’t get to benefit from the rest of your 4 year term anyway. Let’s face it, the banks would be highly unlikely to lend on these terms so it’s not surprising that Caxton are going cap in hand to their clients first.

The offer document talks about giving investors “a 7.25% return on your investment, with the potential of sustained growth of an exciting entrepreneurial business”. That gives the impression that investors will enjoy some sort of continued upside from the success of the business which if you read the small print is not the case. Investors don’t get any equity upside and the maximum gain is the 7.25% coupon (which Caxton can take away at any time by repaying you early). Considering the very risky nature of the investment I don’t think that’s a good deal at all. I would need at least 15% to invest on these terms and probably more like 25%.

There is also talk in the offer document that the founder has “funded the business from the start”. [TEXT DELETED BY FORUM TEAM]

[TEXT DELETED BY FORUM TEAM] In the words of one Dragon, “I’m not gonna invest” !

All in my honest opinion, consult your IFA etc etc....

calypso_rhapsody

I think i'd look for something else to touch with a bargepole.

If you have an appetite for this level of risk, do some research into high yielding equities - you can probably get as good a yield from a much more substantial company and the potential for more upside too.

gadgetmind

calypso_rhapsody wrote: »

If you have an appetite for this level of risk, do some research into high yielding equities - you can probably get as good a yield from a much more substantial company and the potential for more upside too.

Vodafone is about the only non-insurer up at this level, or banking preference shares such as LLPC and NWBD.

I hold all three, and some of the insurers, or rather my wife does, as she doesn't pay higher rate tax so no more tax on the divis.

calypso_rhapsody

I'd rather take a risk on Vodafone than on Caxton FX ... even if the yield were a bit lower!

gadgetmind

calypso_rhapsody wrote: »

I'd rather take a risk on Vodafone than on Caxton FX ... even if the yield were a bit lower!

Me too, but you do need to understand that bonds and equities are very different. and also that this bond isn't transferable, which makes it a very odd bond.

If Caxton FX don't crash and burn, you'll get your money back. With Vodafone, the divi can be cut, they can issue more shares and dilute your holding, and both of these will reduce the value of your investment.

As a result, you either need to hold 15-20 shares like Vodafone (blue chip, high yield, good yield cover, good prospects, etc.) or go for a basket of Investment Trusts that invest in the same. I say "basket" as you probably also want some Emerging Markets and other growth exposure in there.

Reaper

gadgetmind wrote: »

Vodafone is about the only non-insurer up at this level, or banking preference shares such as LLPC and NWBD.

Nah, you can easily beat it. Remember their payments are subject to 20% income tax and can't go in an ISA, unlike most shares.

So after 20% tax this offering only pays 5.8% net.

For comparison The Merchants Trust (an Investment Trust) has a current yield of 6.2% and it can go in an ISA so there is nothing more to pay. Also they have managed to increase their dividend payments every year for the last 28 years, making them a pretty reliable payer.