Carador Eur Share Discussion Threads

[jonwig] 31/1/2012 19:43

Hi, dendria.

I think the $ shares are more liquid than the € shares. More of them maybe ... certainly more trades go through.

Also I've some other $ stocks so keeping the $ account with my broker (TD Direct) saves money.

[dendria] 31/1/2012 19:16

I added today. xd tomorrow - 2.5c on the euro shares.

[jonwig] 24/1/2012 07:09

3.2c, pay 6 Feb, xd 1 Feb.

[jonwig] 23/1/2012 14:09

Thanks - so reinforcing the hope of 3p.
The low default rates are confirmed - that's what I was looking for before I invested.
What they don't mention is the pretty good transfer to capital to preserve payoff when the fund winds down.

[jonwig] 23/1/2012 07:37

This morning's NAV and income breakdown look pretty healthy, with (I think) percentage increases in totals flattered by increased number of shares in issue compared to the previous quarter. (About 40% more?)

Anyway, the bottom line looks like a distribution of $0.03 is on the cards for the quarter.

[jonwig] 19/1/2012 17:59

Well, they told us yesterday they would be paying themselves up to 10% more a year, but could have done a dividend announcement at the same time.

We're due FY results next week I think, so I'd expect something by then.

[stemis] 10/1/2012 08:56

Yes, its reassuring that there seems to be plenty of appetite from investors to provide more capital to Carador. I'd be happy with 3c a quarter dividend and them retaining any excess profits to reinvest.

[jonwig] 10/1/2012 08:48

Statement today about investment of funds raised in C-share issue.

About half invested, with 26% in mezzanine and 74% in residual notes. That largely mirrors existing portfolio, so they seem to have the same mind as previously about the attractions and risk of CLO notes.

[jonwig] 05/1/2012 08:10

Calendar for last four dividends:

07/12/10 ... 2.10c ... xd 29/12 ... pay 31/01
14/04/11 ... 2.25c ...... 24/04 ....... 03/05
20/07/11 ... 2.80c ...... 27/07 ....... 05/08
18/10/11 ... 3.00c ...... 26/10 ....... 31/10

Full Year statement was made on 24/01/11.

Is this rate of dividend increase sustainable?

[jonwig] 03/1/2012 15:07

Yes, quarterly 3c. The payout has been creeping up, so an optimist might even look for more - but I won't go there.

A short video on either FT or Bloomberg highlighted the attractions for 2012 of US junk bonds. I can't find the one again.

Today's 10,000 @ $0.83 was mine. No more just yet!

[stemis] 03/1/2012 14:53

I presume you mean a quarterly dividend of 3c on a share price of 83c.

The last dividend for 1 July to 30 September was announced on 18 October and paid on 31 October. I presume dividend for 1 October to 31 December will be announced around 18 January and paid on 31 January.

[jonwig] 03/1/2012 12:48

Logically, a US economy growing at 2-3% should maintain the low rate of corporate loan defaults which has, apparently been evident for the past couple of years. (Euro issues are about 3% of the portfolio, so not important enough.)

If that means rising prices for junk bonds and/or maintained coupons and principal, CIF's NAV should be resilient and dividend maintained at 3c. That's a yield of 14.5% at 83p. (Maybe 10% tax credid in there, I haven't looked.)

Some significant buying by F&C and Henderson, too.

The USD issue, CIFU, looks the more liquid.

[stemis] 11/11/2011 10:12

Yes

Exhibit 5 in the Edison note seems to set it out well Initial Annual Market
Value interest value
Loan portfolio (LIBOR + 325bps ) 503 17.6
--- ----
CLO liabilities
AAA (LIBOR + 0.26%) 366 1.9 344.4
AA (LIBOR + 0.42%) 25 0.2 20.2
A (LIBOR + 0.70%) 29 0.3 18.1
BBB (LIBOR + 1.60%) 25 0.5 15.5
BB (LIBOR + 3.75%) 20 0.8 14.6
Expenses -10.5 3.8
Loan notes 48.5 10.1 29.6
--- ----
Total 503 17.6
--- ----A loan porfolio is bundled together in a CLO structure. The purchase of the loans is funded by different layers of debt in the CLO, which have different priorties in terms of payment of interest and ultimately capital. The loan notes get any interest left over after all the other layers in the CLO get their interest.

In the example above (how don't know how typical the relative proportions of different layer sof debt are) the loan notes receive an interest rate of 20.8% (10.1/48.5). However Carador buys the loan notes in the market at the purchase price of 29.6 (compared to nominal value of 48.5). The interest rate they are receiving on cost is therefore 34.1% (10.1/29.6). If there are no defaults on the loan portfolio then Carador makes another 63.9% (48.5/29.6 - 1) when they are paid back.

The risk of course is default on the underlying loan portfolio. Because the loan notes take first hit, just a 5% default rate (5% of 503) would wipe out 51.9% of the nominal value of the loan notes ((5% x 503)/48.5). Of course based on purchase price that's lower i.e. just 21.1% ((5% x 503 - 18.9)/29.6).

Caradors strategy is to pile up the interest received as a buffer against any eventual default. They think the market has got the pricing wrong due to the aversion to toxic CLOs.

The big problem for an investor is that we have no way of knowing what is a likely default rate. The accounts are inpenetrable because of the various mark to market adjustments. It's a bit of a blind leap. All for a yield of 13%, when you can get 8% on something like ICP. It'll probaby work out spectacularly well or spectacularly bad.

[jonwig] 10/11/2011 18:37

SteMiS ... a "wet towel job" - you mean "hard work"?

I read the report more than once, and cross-checked it against CIF's website. I found both quite impenetrable, particularly in how they can leverage up fairly realistic returns (5-10%) on underlyings into the kind of shareholder returns they appear to produce.

In contrast, NBDD (which I think is involved in very similar underlying debts) is promising quite modest returns over its lifespan.

I've invested in neither.

[stemis] 10/11/2011 15:59

Interesting report from Edison. Its a wet towel job though.

[yieldsearch] 06/10/2011 08:26

Carador, GLIF and Tetragon quoted

[jonwig] 25/7/2011 12:40

Another candidate - larger, but no dividend record yet as only one year old:

NBDD:

[jonwig] 23/7/2011 07:15

For confirmation, dividend treatment:

UK resident individual Shareholders will be liable to income tax on any dividends received from the Company. Such Shareholders should be entitled to claim a non-repayable dividend tax credit equal to one ninth of the amount of the dividend received. Shareholders who are bodies corporate resident in the United Kingdom for tax purposes may be able to rely on legislation introduced by the Finance Act 2009 with effect from 1 July 2009, which exempts certain classes of dividends from UK corporation tax.

The UK income tax charge in respect of dividends for United Kingdom resident individual Shareholders who are liable to UK income tax, other than higher and additional rate taxpayers, will be at the dividend ordinary rate of 10 per cent. A higher rate taxpayer will be liable to income tax on dividends received from the Company at the dividend higher rate of 32.5 per cent. An additional rate taxpayer (with income in excess of £150,000) will be liable to income tax on dividends received from the Company at the dividend additional rate
of 42.5 per cent. As a result of applying the dividend tax credit, the effective rates of UK income tax for resident individual Shareholders will be reduced to 0 per cent. for individuals taxable at the dividend ordinary
rate, 25 per cent. for individuals taxable at the dividend higher rate, and 36.11 per cent. for individuals taxable at the dividend additional rate.

[From 2010 issue prospectus, p72]

[jonwig] 21/7/2011 20:25

Specu - thanks for your comments. The trouble for now is, I haven't really researched the technical basis of the CLOs ... ie. any counterparty risks.

I'm also, as you point out, a bit uncertain whether CIF or CIFU is the way to go.

There's another play on floating rate notes: Harbourvest Senior Loans Europe Ltd (HSLE) which is non-distressed and in which I've a fairly big holding. yield is nothing like this one, of course!

It will be a few weeks before I invest here (if at all) as I'm away soon.

[specuvestor] 21/7/2011 20:10

Jonwig

I have been in these shares since Feb 2010. At the time I invested 50/50 in both the dolllar and euro shares on that basis that currency fluctuations would even out in the long run. In any case you are given the option to switch between share classes each quarter at predetermined exchange rates.
My first divi's were quarterly dividend @ .0091 euro per share & @ 0.0124 $ per share. That has now increased to 0.021141 euro per share and 0.028 $ per share. The latest divi announcement showed an increase of nearly 40% from the previous Qtr!
I dont know what the managers are doing but whatever it is may they keep it up!
Amazingly the share price has not gone up depite the massive dividend increase. Suffice to say I topped up even at three times my original purchase price. I can't believe they were languishing at 20p just 18 months ago. I am now receiving a massive 35% yield (58%gross) on my original purchase price. You are best putting these in an ISA or a SIP. At the current yeild of 12% it is equivilant to 20% for higher rate tax payers.
Latest reports indicate that prospective income stream to the fund is continuing to be upgraded. Oh and the icing on the cake is that in the event of interest rate rises the income will increase as loans are on variable rates. This is indeed a dividend delight!

[jonwig] 21/7/2011 11:22

FT 8 July 2011:

Debt funds offer 12 per cent yield in benign world view

By David Stevenson

When commenting on retail corporate bonds a few weeks ago, I mentioned in passing a London-listed income fund called Carador (ticker CIFU.L), which specialises in sub-investment grade debt. But I didn't explain why adventurous investors might want to consider this specialised dollar (and euro) denominated fund.

To understand the opportunity, answer this question: what do you think will happen to the US economy?
More
On this story

Adventurous Investor More columns from David Stevenson

Two outcomes seem likely. Either we're on the brink of a double-dip recession or we're going through a growth scare, before the business cycle picks up in the fourth quarter. If you believe the former, it's time to think about ultra-short-dated Treasuries, and gold exchange-traded funds. If you expect an uptick in growth, then quality US blue-chip shares should power ahead.

But there's a catch with the more optimistic view. As growth picks up, we would normally expect the US Federal Reserve to take its foot off the stimulus pedal and start applying the interest rate brake. If that's the case, many traditional investment grade bonds will start to underperform, relative to both equities and sub-investment grade, high-yield, bonds. And it is this second scenario that should be perfect for Carador.

It is one of a number of funds that lends to mid-to-large cap US companies through senior, secured debt structures. However, figures from advisory firm Singer show that the yield on Carador, at 12.9 per cent, is the highest in its peer group.

Now, a cynic would immediately reply that the yield is high because the holdings are unduly risky: Carador uses collateralised loan obligations (CLOs) to lend to US corporates, and the bumper yield comes from a combination of interest payments and equity kickers issued to the fund.

CLOs, but no cigar

For investors who are optimistic about the US economy, an obvious alternative to a sub-investment grade debt fund, such as Carador, is a simple S&P 500 index tracker fund. But I can't quite bring myself to regard large-cap US shares as great value at the moment. By contrast, I reckon Carador's share price could recover as the London market begins to value that increasing, well-backed, dividend yield.

However, if Carador's reliance on CLOs sounds too complicated, take a closer look at Paul Causer and Paul Read's two high-yield funds: City Merchants High-Yield Trust, yielding just over 6 per cent at the moment. and the Invesco Leveraged High-Yield Fund, yielding, more than 8 per cent.

For more on income funds, check out my latest Financial Times book: The FT Guide to Investing for Income, available at

In fact, this is an oversimplification. It is a more complex structure, which brings many risks: a bias towards debt-hungry sub-investment-grade US companies; variable cash flows from the CLOs; potential for substantial losses on assets.

Then, there is the biggest risk of all: that we're not in the optimistic scenario but facing a double-dip recession – which is the wrong time to be looking at leveraged sub- investment-grade debt structures. If you read a great deal of Société Générale's Albert Edwards or the wonderful ZeroHedge blog, this is easy to believe.

Personally, though, I don't think we are on the edge of the abyss. I reckon we can muddle along with (slightly) higher interest rates and (not so slightly) higher inflation. And in this scenario, leveraged debt could be a great place to get a 10-12 per cent annual income.

I favour Carador as the fund to provide this, as it appears conservatively managed, uses diverse underlying structures and has fairly cautious valuation policies. In particular, the managers go out of their way to amortise down the value of their riskier investments – paying back capital before they start making income payments.

But the biggest selling point for me is that the majority of Carador's lending to corporates is based on floating rates. So if interest rates do increase, the amount of income received by the fund should also increase.

Carador has run various sensitivity analyses and concludes: "a 1 per cent rise in interest rates adds US$4.6m to annual income". Some analysts even at reckon that the dividend pay-out on the fund could rise by low double digits for each 1 per cent rise in the London interbank offered rate (Libor).

Obviously, the flaw in this argument is that real businesses are more messy. A rise in interest rates could equally result in a wave of defaults that would make the current 1 per cent default rate look insignificant.

Still, I feel that Carador will be a net beneficiary of the benign scenario that I have painted – and is probably the most accessible fund of its kind for UK investors.

[jonwig] 21/7/2011 11:14

Annual dividend around €0.084 giving a yield of about 12%.

Question: buy CIF (the EUR shares) or CIFU (the USD shares)?

[jonwig] 21/7/2011 11:14

Chart for CIFU:

...



After conversion of the C shares on 29 May 2012, total capital will be 419,053,358 USD shares.

Useful link:



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