High yield bonds: equity proxy… for what?

chucknorris

masonic said:

chucknorris said:

The fact that the bond has increased from circa 40 pence to almost 90 pence makes it hard to imagine that there isn't some sort of plan to refinance the bond, if there wasn't, I think it would have remained at about 40 pence.

Until you pointed out the illiquidity and small volumes driving the price movements I would have agreed with you about that. However, we're talking about £20k of smaller trades taking the price up 5p. It seems rather a stretch to suggest this activity is attributable to a material change in prospects. An alternative explanation would be to attribute the movements to sentiments around Covid, restrictions, and the ability of the business to generate income. This would marry up with the sudden drop in price in March 2020. When the price fell, there were clearly a bunch orderly trades which took the price down gradually, then it plummeted when demand had been exhausted (with negligible activity supporting the wild swings in bid and offer price from 25-50p, and the same is largely true of the rise back up to 80p).

Whatever is going to happen will happen, I am not in control of the situation. So my choice is simple, I either take up to a £80k profit now selling at about 86.5 pence, or stay in and hope for better. I have made my decision to let this play out.

There was nothing to buy at less than 38p, I tried several times to buy at around 28p even as low as £5k, so anything at that level was literally peanuts.

I think that there is a reasonable chance this will turn out OK, after all, they have just spent £4m on a new training ground this year, and last year gained planning permission to build a 130 bed hotel on their site. If there wasn't a realistic chance of Wasps surviving, I don't think that those 2 activities would have occurred.

Thrugelmir

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

aroominyork said:

masonic said:

chucknorris said:

aroominyork said:

chucknorris said:

JohnWinder said:

That’s an honest person admitting they can’t take any advantage of market inefficiency other than by the luck of the gambler. What does one think of one’s own skills/knowledge/capacity to exploit market inefficiencies?

It depends on the market, one of the reasons that I moved to London (from Newcastle) in the early 90's was to take advantage of the high yields available from residential property, that was just about the only thing that I invested in at that time (apart from ISA's, known as Pep's and Tessa's at the time). It was after I made quite a bit from property, and every man and his dog also seemed to be getting into property that I started to slowly diversifying into equities, and about 10 years ago much more so. It is only in recent years that I invested in bonds. But I don't have to beat the market, in fact, I should really be looking to avoid risk and preserve my investments, which I am slowly accepting (that is why I would never invest in something like the Wasps bond again). I think my problem is that I do have a tolerance for taking on risk without being uncomfortable, but that doesn't actually suit my financial situation. You could say that in the last few years I have been in denial and carried on behaving if I was still trying to make more, it's a hard habit to break, but I do realise that I need to change my attitude.

Rich people trying to get off the ladder of being even richer: a predicament many of us would like! Well done on amassing well over £20m!

I wish it was that much! It's in the £m's but nowhere near £20m, did I post something that implied that much (maybe there is a typo somewhere)?

The linked post stated "I only invested about 0.5% of my portfolio (still a significant well over 6 figure sum..." I did the same maths (£100,000 / 0.005 = £20,000,000) and figured you had quite the property empire at some time!

chucknorris said:

Ahh there is the typo, it should have been 5% (but it was quite a bit over £100k), thanks I will edit that post

Did you realise it was 5% and not 0.5% when you used the word "only"?

What you said doesn't make sense, how could I possibly be aware when it was a typo (think about what you are saying). A typo is something that you are unaware of. But if you mean me being relaxed about the situation, the answer is yes.

Because 5% of my portfolio was very likely to be at risk because the bond of £35m is secured upon a stadium valued at over £50m, so even in the event of a bizarre set of circumstances the actual amount at risk would probably not exceed 0.5% of the value of my portfolio. Which is why I invested a further significant amount (above my original investment) when the price fell under 40 pence, I thought that was fantastic value. I was very happy to be invested at an average of 59 pence when the bond is secured against an asset valued  at over 50% of the debt, and I am invested more than 40% below the face value (based on security being over 50% of the debt). And not forgetting the running yield being so high too.

I think the point aroominyork was making was that 5% is not generally considered a small percentage of one's total net worth to be invested in the assets of a single company or asset. Maybe it is for a BTL property investor

My response to that is that although 5% was invested, 5% was not at risk, and that was my comfort level, which would be reflected in any statements that I made.

That's what I used to think when investing in assets secured on property...

You need a lot of legal and finance expertise to really get to the bottom of what would happen in various distress scenarios. Even the professionals regularly get it wrong. As someone who has neither a legal nor financial background, I've been quite surprised by the variety of ways I've suffered losses due to unforeseen risks, each to the tune of £500 or less, thankfully. I'm therefore very cautious of translating an asset valuation into a creditor outcome.

I am a chartered quantity surveyor (although these days I teach it at university rather than in work in private practice), so I do have knowledge of both property and contract. 

Ah, ok, I read somewhere earlier in the thread that you had no specialist knowledge. Perhaps you wouldn't consider that to be so, but I'd consider it to be and see why it would give you greater confidence than a typical retail investor.

Thanks, what I meant that I had no real insight into Wasps exact position (what is going on behind the scenes), the one thing that did concern me was that Derek Richardson (Wasps owner) was a ex city boy, and although he might not want to commit insider trading, he would obviously have many contacts in the City, so I found it confusing that the price could be allowed to drop so low if the long term position was sweet (that was the risk that I perceived that I was taking on).

I suspect many would not want their money tied up in a lengthy insolvency process if that's the way it went. So the price could fall even below the estimated fire-sale value of the stadium. There's an opportunity cost for money that needs to be continually making money.

What I meant was that if Derek was negotiating a refinancing deal (so no insolvency issues on the horizon) I would have suspected a lot of people 'in the know' would have been investing in the bond and holding the price up. So I suspected everything was probably not so rosy, or at least unknown. But my view was that something sort of refinancing deal was likely to be forthcoming, but if not, investing at only 59 pence (and a running yield overall of 10%) was still a sound proposition.

But I won't be taking on risk like this again, or rather not in the size of investment that I did, it was value, but I do not need to chase value and take on risk.

Perhaps, although how many times has an entrepreneur been bullish right up until the point everything went to pieces. He'd be the wrong person to listen to if you wanted an honest appraisal of how negotiations were going. Things probably weren't rosy, because those with deep pockets have a way of knowing, but it seems things have greatly improved since.

I think that you misunderstood, what I meant was that he is very wealthy and will also have 'very close' wealthy friends who he could give the nod to, rather than !!!!!! false optimism. But that is history now, that didn't happen and the price did fall below 40 pence, and I just had to take on that chance, to me the value looked exceptional. I did think about investing a lot more at 38 pence, but I restrained myself.

I don't know whether that's realistic or not, but such wealthy individuals working in the city will no doubt be well informed, and it would surprise me if they'd have that much trust in anyone to act without corroboration from a disinterested party or independent source. Perhaps they got in at the beginning of November 2020. What we can say is that prior to that the major institutional and HNW investors did not see it as a one way bet at a sub-50p price.

I never said that it was a one way bet, I only said that IMO it was value (and value having to accept substantial risk).

I wasn't implying that you said that (or thought it). I meant that they would need to consider it a one way bet to pile their money in to the extent it would push up the price of the bond to a level we might consider reflective of the value of the underlying asset. For the avoidance of doubt, I'm not criticising your rationale for doing what you did, just trying to explain my take on why the price was what it was.

That bond is not very liquid. I even noticed that some of my purchases (which were not large, typically between £10k and £40k) were moving the price slightly, if you look at the graph on the LSE and match them to the trades, you will see that even smaller investments (and sells) than mine move(d) the price.

The issue is only £35 million. If you own a six figure sum of the stock then you'll be a significant bondholder. 

masonic

chucknorris said:

masonic said:

chucknorris said:

The fact that the bond has increased from circa 40 pence to almost 90 pence makes it hard to imagine that there isn't some sort of plan to refinance the bond, if there wasn't, I think it would have remained at about 40 pence.

Until you pointed out the illiquidity and small volumes driving the price movements I would have agreed with you about that. However, we're talking about £20k of smaller trades taking the price up 5p. It seems rather a stretch to suggest this activity is attributable to a material change in prospects. An alternative explanation would be to attribute the movements to sentiments around Covid, restrictions, and the ability of the business to generate income. This would marry up with the sudden drop in price in March 2020. When the price fell, there were clearly a bunch orderly trades which took the price down gradually, then it plummeted when demand had been exhausted (with negligible activity supporting the wild swings in bid and offer price from 25-50p, and the same is largely true of the rise back up to 80p).

Whatever is going to happen will happen, I am not in control of the situation. So my choice is simple, I either take up to a £80k profit now selling at about 86.5 pence, or stay in and hope for better. I have made my decision to let this play out.

There was nothing to buy at less than 38p, I tried several times to buy at around 28p even as low as £5k, so anything at that level was literally peanuts.

I think that there is a reasonable chance this will turn out OK, after all, they have just spent £4m on a new training ground this year, and last year gained planning permission to build a 130 bed hotel on their site. If there wasn't a realistic chance of Wasps surviving, I don't think that those 2 activities would have occurred.

I'd go as far as to say, based on the current situation, that it is somewhat likely that Wasps will survive, given they have made it this far without taking drastic measures. Much will depend on their ability to operate in the coming weeks. Given the choice I would take a certain 86.5p and forego some income rather than holding out for a potential 100p in a few months time, but I don't think you have that option. If you were to try to sell your substantial holdings, you'd likely be unable to achieve that price, and would likely drive the price down to a level where it would seem more attractive to hold to term.

On the subject of the buying opportunities sub-38p, the price chart suggests these were supported by trades of c. £100, so I'm not surprised your "low" £5k buys were not achieving anything like that.

chucknorris

masonic said:

chucknorris said:

masonic said:

chucknorris said:

The fact that the bond has increased from circa 40 pence to almost 90 pence makes it hard to imagine that there isn't some sort of plan to refinance the bond, if there wasn't, I think it would have remained at about 40 pence.

Until you pointed out the illiquidity and small volumes driving the price movements I would have agreed with you about that. However, we're talking about £20k of smaller trades taking the price up 5p. It seems rather a stretch to suggest this activity is attributable to a material change in prospects. An alternative explanation would be to attribute the movements to sentiments around Covid, restrictions, and the ability of the business to generate income. This would marry up with the sudden drop in price in March 2020. When the price fell, there were clearly a bunch orderly trades which took the price down gradually, then it plummeted when demand had been exhausted (with negligible activity supporting the wild swings in bid and offer price from 25-50p, and the same is largely true of the rise back up to 80p).

Whatever is going to happen will happen, I am not in control of the situation. So my choice is simple, I either take up to a £80k profit now selling at about 86.5 pence, or stay in and hope for better. I have made my decision to let this play out.

There was nothing to buy at less than 38p, I tried several times to buy at around 28p even as low as £5k, so anything at that level was literally peanuts.

I think that there is a reasonable chance this will turn out OK, after all, they have just spent £4m on a new training ground this year, and last year gained planning permission to build a 130 bed hotel on their site. If there wasn't a realistic chance of Wasps surviving, I don't think that those 2 activities would have occurred.

I'd go as far as to say, based on the current situation, that it is somewhat likely that Wasps will survive, given they have made it this far without taking drastic measures. Much will depend on their ability to operate in the coming weeks. Given the choice I would take a certain 86.5p and forego some income rather than holding out for a potential 100p in a few months time, but I don't think you have that option. If you were to try to sell your substantial holdings, you'd likely be unable to achieve that price, and would likely drive the price down to a level where it would seem more attractive to hold to term.

On the subject of the buying opportunities sub-38p, the price chart suggests these were supported by trades of c. £100, so I'm not surprised your "low" £5k buys were not achieving anything like that.

Given the low liquidity, getting out completely would probably be a fair bit lower than the 86.5p currently showing, that is part of the reason for my decision. But mainly because Wasps are not behaving like they are in a crisis, i.e. obtaining planning permission for another hotel on their site (there is already one there now) and building the new training ground for £4m. That has given me some faith that their CEO was not bullshitting last year, when he said that the refinancing of the bond isn't going to be  a problem. A bit of detail would have been nice, but maybe the details need to be kept discreet for some reason. 

Thrugelmir

chucknorris said:

masonic said:

chucknorris said:

masonic said:

chucknorris said:

The fact that the bond has increased from circa 40 pence to almost 90 pence makes it hard to imagine that there isn't some sort of plan to refinance the bond, if there wasn't, I think it would have remained at about 40 pence.

Until you pointed out the illiquidity and small volumes driving the price movements I would have agreed with you about that. However, we're talking about £20k of smaller trades taking the price up 5p. It seems rather a stretch to suggest this activity is attributable to a material change in prospects. An alternative explanation would be to attribute the movements to sentiments around Covid, restrictions, and the ability of the business to generate income. This would marry up with the sudden drop in price in March 2020. When the price fell, there were clearly a bunch orderly trades which took the price down gradually, then it plummeted when demand had been exhausted (with negligible activity supporting the wild swings in bid and offer price from 25-50p, and the same is largely true of the rise back up to 80p).

Whatever is going to happen will happen, I am not in control of the situation. So my choice is simple, I either take up to a £80k profit now selling at about 86.5 pence, or stay in and hope for better. I have made my decision to let this play out.

There was nothing to buy at less than 38p, I tried several times to buy at around 28p even as low as £5k, so anything at that level was literally peanuts.

I think that there is a reasonable chance this will turn out OK, after all, they have just spent £4m on a new training ground this year, and last year gained planning permission to build a 130 bed hotel on their site. If there wasn't a realistic chance of Wasps surviving, I don't think that those 2 activities would have occurred.

I'd go as far as to say, based on the current situation, that it is somewhat likely that Wasps will survive, given they have made it this far without taking drastic measures. Much will depend on their ability to operate in the coming weeks. Given the choice I would take a certain 86.5p and forego some income rather than holding out for a potential 100p in a few months time, but I don't think you have that option. If you were to try to sell your substantial holdings, you'd likely be unable to achieve that price, and would likely drive the price down to a level where it would seem more attractive to hold to term.

On the subject of the buying opportunities sub-38p, the price chart suggests these were supported by trades of c. £100, so I'm not surprised your "low" £5k buys were not achieving anything like that.

A bit of detail would have been nice, but maybe the details need to be kept discreet for some reason. 

The pandemic is no doubt wreaking havoc on the revenue streams for the both the property and playing sides of the business.  Resulting in further operating losses and potentially impacting on the valuation of the property estate.