Corporate Bond - Halifax

Lothian5

Hello, wonder if someone can help me with my understanding.

There is a Halifax corporate bond with a coupon of 13.6% https://www.hl.co.uk/shares/shares-search-results/h/halifax-13.625-perp-subord-bds-regd-gbp

I have a mortgage with Halifax of £170k at 4.1

Two ISAs (HL and II) with a combined value of £150k.

Would it be a good idea to change the investments in the ISAs to buy the Halifax bond and get the Halifax to pay off my mortgage in time?

EthicsGradient

Note the HL warning "This is a complex instrument. Complex instruments have features which may be more likely to lead to poor outcomes for investors".

Also note the huge sell/buy price difference - £180.50/£198.00. This indicates this is not a liquid investment, and could prove hard to sell if/when you want to.

Not a good idea unless you're confident you understand absolutely everything about it.

poseidon1

https://forums.moneysavingexpert.com/discussion/6683973/corporate-bond-halifax

No.

This investment is wholly unsuitable for the average retail investor with rudimentary understanding of stock market investing.

These bonds rank very low in terms hierarchy of investor protection if the bank encounters severe financial stress, and it is designed to be ' sacrificed' along with equity investors, hence the high notional interest rate of 13.6%.

The bond has no redemption date at which the bond must be redeemed, and at its current price that is just as well since redemption may well be at par which would trigger a very large capital loss to investors - see short article below

https://www.robeco.com/en-uk/glossary/fixed-income/subordinated-bonds

Just to reinforce its unsuitabilty as a mortgage repayment vehicle, depending at what point you may have invested in the last year and then wish to sell, you would be looking at capital losses of between 1.69% and 7.68% depending on timing - see below

https://www.lse.co.uk/SharePrice.html?shareprice=HALB&share=Halifax-13febd

Don't let the Halifax Bank moniker mislead you that this is a safe predictable investment. There is always an appreciable risk when a corporation pays a very high rate of interest on its tradeable loans.

masonic

Were you thinking this is low risk because if Bank of Scotland plc (issuer of the bond) went bust, you'd be able to set off the bond against your mortgage debt and not owe anything net? Because I don't think that's how it would play out.

It is worth noting that the coupon is 13.625%, but the running yield of the bond is 7.20%. It currently trades at nearly double its face value, so if you bought £150k now, the redemption value would be about £80k, so you'd effectively be making an immediate £70k capital loss for £11k per year in income for an unknown number of years.

The Halifax brand is going away in just over a month's time. Imagine if Lloyds Banking Group decided to retire these bonds shortly after.

Lothian5

Thanks all!!!!!!!!