Warren Evans Bond

EdGasket

I can't understand the logic of risking everything for a maximum capped return of 7.5% pa?? If you really think there is a chance of losing the lot and you can take that risk then at least invest in something that may double your investment (plenty of candidates in the stockmarket) otherwise your risk/reward exposure is skewed towards losing money.

zeenapleena

why would you tie your money up for 3 years in a small company that is privately owned by a meglamaniac. if the company is so strong - why have they not gone to the bank to borrow this money - after all they're not trying to raise a lot of money. I wouldn't touch this for anything - this is not an investment - there is no upside - only risk

bowlhead99

zeenapleena wrote: »

why would you tie your money up for 3 years in a small company that is privately owned by a meglamaniac. if the company is so strong - why have they not gone to the bank to borrow this money - after all they're not trying to raise a lot of money. I wouldn't touch this for anything - this is not an investment - there is no upside - only risk

Would you take investment advice from someone who can't start sentences with capital letters, spell "dodgy" or "megalomaniac", doesn't understand why a company may seek medium term finance from retail lenders to support growth rather than expensive bank facilities - once it becomes large and credible enough to do so - and registers on a forum purely to tell the world that an investment opportunity is not for them? I wouldn't - I would write them off as a disaffected ex employee or a somewhat illiterate business rival.

I didn't enthuse about someone saving for a house deposit making a small investment in this issue, because the return would not make a material difference to their deposit, while the risk is relatively high (compared to bank savings etc).

Ability to repay depends not just on whether you believe the beds are comfy and the service friendly, but how furniture businesses in general are faring in 3 years - a lot of which depends on the housing market which may be slowing down around then with the expiry of some of the current gov't support, and retail spending driven by changes in the consumer credit environment and employment etc. Overlaid on this, their success at managing a significant expansion in doubling their showrooms is clearly going to impact their ability to repay or refinance when the time comes.

However, the existence of risk does not stop it being an investment opportunity. Like nearly any debt investment there is more potential downside (100%) than upside (0%). But it is lower risk than owning the equity shares of the parent/guarantor. The question is simply whether the coupon at 7.5% is high enough given other opportunities which may arise over the time period and a perceived likelihood of the potential loss actually happening.

A government 3 year gilt is only paying approx 0.75% yield - very negative in real terms. But a zero risk 10-year gilt has now gone back up to 2.6%, and if you want something spicier you can get 7%+ yield with Lloyds or Natwest preference shares (there are of course other, higher paying, examples in the world of corporate bonds and prefs - those are just a couple I hold). Not only do all of these fit inside an ISA to save a chunk of tax, they can be sold on at any time the stockmarket is open, unlike the Warren Evans bond which is not transerable. Of course, being able to sell out may not help you get out unscathed if either bank 'does a Co-Op' - but it helps avoid total losses.

More cautious investors who wanted better rates than bank deposits or gilts but didn't want to invest in loans to single companies would of course buy a fund which has a spread of them for a nominal fee. So, opportunities to try and beat bank interest rates are everywhere, if your time horizon and risk appetite is large enough. But this doesn't mean the Warren Evans bond is a dodgy or useless investment opportunity or a scam. You just need to decide if the return is right for you.

As to Mr Evans himself, who appears to have grown a business from one workshop to a national firm of 200 staff, while winning various 'green' and 'ethical' awards along the way - if he is now raising debt finance instead of equity funding so as not to cede control of his business during an expansionary phase, I guess some would call that megalomania but others would call it entrepreneurship, or at least applaud his capitalist spirit in growing a British SME.

You could always apply to open an IKEA franchise if you want to try to put him out of business. Or keep sticking your cash into a bank deposit account at 2% for the bank to then lend to him at 10% and have them make the profits instead.

Jevvers

Thanks Bowlhead, that is really really useful. And I thought disgruntled employee too!

CoolKRS18

zeenapleena wrote: »

why would you tie your money up for 3 years in a small company that is privately owned by a meglamaniac. if the company is so strong - why have they not gone to the bank to borrow this money - after all they're not trying to raise a lot of money. I wouldn't touch this for anything - this is not an investment - there is no upside - only risk

I think it is worthwhile discussing the validity of non-bank capital investment as there seems to be a perception running that unless you go to a bank than the company is not worth investing in.

There are many alternate investment models which business are now using and unless you are aware of the brisk and benefits of each you may not be properly considering your investments.

Bond issues are one of the older ways of raising capital. I think one of the telling items of this issue is the amount they are looking to raise. £2.5 million is actually quite a small amount even for a small business so they get maximum flexibility on use of your fund without any external intervention. This may be one of the reasons why they eschewed a bank loan.

They also could have gone directly to private investors. I am pretty sure that most private investors would have jumped at the chance for the brand alone. I would assume that the Warren Evans brand in luxury circles is worth much more that £2.5 million. The most significant risk to this would have been exposure to the capital partner. Most private investors would have been looking for some amount of ownership and that is probably something they didn't want to do.

The most risky and new investment involves "Crowd sourcing". You may have heard of Kickstarter or Gofundme. Both of these involve a number of "micro-investors" which provide capital for a business. As I said this is the most risky but just because its risky does not discredit the model or the business that use it. I imagine that as it evolves some of your bigger business will start leveraging it but right now you need to be very careful about the business that are using it to grow.