Unite Group 6.125% 2020

poppy10_2

These guys look like going bust soon, I wouldn't go anywhere near them

grey_gym_sock

poppy10 wrote: »

These guys look like going bust soon

why do you think that?

Glen_Clark

Wobblydeb wrote: »

The last lending round (£121m from L&G in May 2012) was finalised at 5.05% which yes, is cheaper than the bond on offer.

Is repaying the L&G debt a higher priority if they go bust?

Wobblydeb

Glen_Clark wrote: »

Is repaying the L&G debt a higher priority if they go bust?

Possibly. The retail bond is unsecured. I would not be surprised if other debt is subject to security. (NB There is another £300m+ of debt as well as the L&G debt)

It does of course rank ahead of shareholders in the event of collapse.

sabretoothtigger

Bonds might be the worst place to put your money

- Warren Buffet

The fundamentals do not support the spreads you're seeing on treasury bonds right now or most bonds right now.
So this is what we saw prior to the crisis with the housing market with a different asset class but with the massive underpricing of risk, eventually its going to correct

- Shelia Blair FDIC


Even ignoring the dynamics of depreciating currency, inflation, etc 8 years is a heck of a long time to wait for a cheque and hope it dont bounce. Seriously awful idea and you wont even be protected by FSCS near term.
One good point is that student accommodation doesn't appear to be a massive risk however higher education, funding and how it was ramped up is again related to government (over)spending. Its feasible it could also fall over, the growth proving false longterm and 8 years is pretty longterm

grey_gym_sock

i wouldn't like to buy long-dated bonds, because their yields are artificially depressed, and there is a good chance that yields will rise (damaging the value of the bond) before the term is over. with short-dated bonds, there is a chance that low yields will persist for all or most of the life of the bond.

now you could argue that 7.5 years is still too long. you could wait for a shorter term new issue; there are some for only 6 years, but i'm not sure if there are many shorter than that. or you could buy a shorter-still old issue on the market.

i'm not a huge fan of bonds at all, but there is a case for holding a few. and if you do, shorter bonds look safer than longer 1s; and corporate bonds look better value than gilts.

roundabouthere

Yesterday in the telegraph there was an article on these types of bonds.

Basically they only seem to get offered out to the general public once the big financial institutions have turned them down. The feelings of the author was that the risks (because you can lose all your money if the company goes under) were not offset enough by the interest rate levels offered.

Glen_Clark

Wobblydeb wrote: »

Possibly. The retail bond is unsecured. I would not be surprised if other debt is subject to security. (NB There is another £300m+ of debt as well as the L&G debt)

These are the things you need to find out because they can make the difference between getting your money back, or not. In my experience, the banks always seem to get themselves ahead of retail investors in the pecking order.
The Government's 'Education, Education, Education policy has been throwing money at funding mickey mouse degrees in subjects for which there are no jobs. That has got to stop, which can only result in a decline in student numbers, and accommodation required.
Sure the property is still worth something, but not as much as when its crammed full of students paying rent.

Wobblydeb

Glen_Clark wrote: »

These are the things you need to find out because they can make the difference between getting your money back, or not. In my experience, the banks always seem to get themselves ahead of retail investors in the pecking order.
The Government's 'Education, Education, Education policy has been throwing money at funding mickey mouse degrees in subjects for which there are no jobs. That has got to stop, which can only result in a decline in student numbers, and accommodation required.
Sure the property is still worth something, but not as much as when its crammed full of students paying rent.

Yep, as I said the bond is unsecured. There isn't a summary for each tranche of debt, but the reports state that debt is secured against property. I would anticipate debentures as a minimum for bank debt. My assumption when putting money in was that the debt would rank alongside the typical unsecured creditors, behind the corporate debt.

Risk is all relative. For instance I hold RBS shares. If THAT folds then I will see diddly squat. I do of course hope for more than a 6.125% annual return for that investment

The stop in UK student numbers actually happened several years ago. There was a freeze on numbers, with the government fining institutions which recruited above target. The only growth available to institutions has been in specialised pockets - typcially STEM subjects, for which institutions have had to bid.

As for declining numbers due to fees, that remains to be seen. It is too early yet to assess the impact, although (unusually) applications are down for the second year running after a change in fee structure. Next year sees another change, with institutes free to recruit unlimited numbers of students with at least two As and a B. The Russell Group universities (which Unite is targeting) as normal, did not enter clearing last year and suffered as a result. I believe that will change next summer, as they have learnt from the experience. They will be looking to mop up the best students, who may actually be able to "trade up" through clearing, rather than delaying attendance and re-applying the following year. This may actually be the cause of the drop off in applications this year, although the A-Level results and comments in the press would suggest otherwise.

A bigger impact may be people opting to live at home to reduce costs. The impact should vary by institute - for instance I worked at an institute with a high proportion of local (and lower income) students. I would anticipate a more notable drop off in demand there, than in the Russell Group universities. The prestige means that students are willing to travel to attend them, and hence there is a higher proportion non-local students that require accommodation.

Glen_Clark

Wobblydeb wrote: »

Yep, as I said the bond is unsecured. There isn't a summary for each tranche of debt, but the reports state that debt is secured against property.

I must be missing something here. If its 'unsecured' how can it be 'secured against property'
Your post is interesting, but the thing I would be most interested in would be who is ahead of me, and who is behind me, in the queue for repayment if it all goes wrong.