Individual corporate bonds

chucknorris

I invested in 2 corporate bonds in the last few days:

WASPS FINANCE PLC (WAS1) 6.5% 2022

https://www.hl.co.uk/shares/shares-search-results/w/wasps-finance-6.5-2022

and

PROVIDENT FINANCIAL (66WS) 5.125% NOTES 09/10/23 GBP100

https://www.hl.co.uk/shares/shares-search-results/p/provident-financial-5.125-notes-091023

I am curious what other investors thought about what other investors think about them. Provident financial have had issues but seem to be recovering, and Wasps used the £35m bond to buy their stadium (currently valued at £67m). Both bonds have senior status.

I originally intended to invest in safer bonds but the returns are so poor, I eventually decided to invest in bonds that matched my risk comfort level. I'm aware that they are not 100% safe, but I feel optimistic about their survival until the bonds are redeemed.

EDIT: I was also interested in the Metro Bank corporate bond, but the minimum investment is £100k, which was more than I wanted to risk:
https://www.hl.co.uk/shares/shares-search-results/m/metro-bank-plc-5.5-rst-call-sub-260628

Alexland

Crikey, you are brave - hasn't the FCA starrted to investigate Wasps for allegedly overstating its earnings and breaching covenants on a retail bond?

https://www.coventrytelegraph.net/news/coventry-news/coventry-news-wasps-finances-fca-16119966

"PwC had also cast doubt on the future of the club after its accounts revealed it was relying on shareholder cash to stay afloat."


Alex

Reed_Richards

chucknorris wrote: »

https://online.hl.co.uk/my-accounts/...

This sort of link, to "my-accounts" isn't going to work for anybody else.

chucknorris

Reed_Richards wrote: »

This sort of link, to "my-accounts" isn't going to work for anybody else.

Thanks, the links should work now.

chucknorris

Alexland wrote: »

Crikey, you are brave - hasn't the FCA starrted to investigate Wasps for allegedly overstating its earnings and breaching covenants on a retail bond?

https://www.coventrytelegraph.net/news/coventry-news/coventry-news-wasps-finances-fca-16119966

"PwC had also cast doubt on the future of the club after its accounts revealed it was relying on shareholder cash to stay afloat."


Alex

Yes I read that, and opinion seems to be that if they will need to refinance to avoid having to sell their stadium, which they are desperate not to do. Although it was valued last year at £67m, it actually cost £113m (just to build i.e. construction cost only, which includes a 2010 extension, which I think was a hotel), so I think that £67m valuation is probably a forced sale valuation, and it is probably worth a lot more to Wasps than that.

I should add that I limited my investment (in each bond) to marginally under 1% of my total portfolio value.

Reaper

You have been looking at the riskier end. Those ones (including Metro Bank) don't appeal to me.

Have you considered other options such as income focused investment trusts? I haven't researched them recently but for comparison I hold Merchants Trust which offers a current yield of 5.2% and has raised that every year for the last 37 years.

I'm not saying they will do better than your choices in future, but at least they are a bit more diversified.

Freecall

Alexland wrote: »

Crikey, you are brave

I'm not sure that it is a question of being brave, risk in isolation is not the issue.

The real question is, does 6.5% offer a good value return in the context of the risk associated with the investment? After all we all take risks when we invest.

Presumably Chuck thinks it does.

chucknorris

Freecall wrote: »

I'm not sure that it is a question of being brave, risk in isolation is not the issue.

The real question is, does 6.5% offer a good value return in the context of the risk associated with the investment? After all we all take risks when we invest.

Presumably Chuck thinks it does.

I do, but I have no inside information, so it is merely my humble opinion.

Because the price as under £100 (£95.20) the redemption yield is actually higher than the 6.5% coupon rate, it is 8.87%, with just over 3 years to run on the bond until the redemption date.

coastline

chucknorris wrote: »

I do, but I have no inside information, so it is merely my humble opinion.

Because the price as under £100 (£95.20) the redemption yield is actually higher than the 6.5% coupon rate, it is 8.87%, with just over 3 years to run on the bond until the redemption date.

This site might come in handy..

https://www.fixedincomeinvestor.co.uk/x/default.html

short_butt_sweet

i quite like (i.e. think the reward (yield to redemption) is good for the level of risk (that they won't pay)) 66WS, and hold some of it (among other corporate bonds, most of which have lower yields); but i don't like WAS1.

provident financial is a profitable company, which has had a few disasters, but seems to be recovering. the shareholders put in more money in a rights issue, which can only help bondholders (whether or not it proves to be a good investment for the shareholders).

prov. fin. is currently the target of a hostile takeover bid from a much smaller company, NSF. this may seem dramatic, but when you note that it's an all-paper bid, and is backed by some institutions who are major shareholders in both prov. fin. and NSF, then it looks more like a way to merge 2 businesses and sack the management of prov. fin.

meanwhile, my first problem with wasps is that it doesn't seem to be profitable. common with many sports teams, and they can often keep going, because they're owned by somebody who is a fan as has enough money to keep putting more in. but then a time may come when they can't or won't put more money in, and there's the risk to bondholders.

owning the ground clearly provides some security. however, when buying a bond i like to see a reliable way (e.g. a profitable business) of generating cash to pay at least the interest (even if refinancing may be needed to repay the principal). also, the value of the ground is not very reliable, in the sense that if the rugby club using it ended up insolvent, then that would tend to reduce its value (precisely when bondholders might want it sold off, so they can be paid), because why would another rugby club do better? if another can even be found who'd like to try. and how many other uses are there for the ground? so certainly it's worth something, but it would be very much up-in-the-air how much.

and the FCA investigation doesn't increase my confidence.

however, it is difficult to find corporate bonds yielding so much now. (and few are priced at below their face value.)

AnotherJoe

I wouldnt touch anything with a sports team, far to easy to go bust and then be bought for a pittance writing off all previous debts. I wonder where the £67M valuation for the stadium comes from? Is that as a stadium or bulldozed for flats?