European Equity Tranche Income Share Discussion Threads

[davebowler] 21/8/2007 13:55

Loans are to Spanish Nationals,not foreign owners.

[ilancas] 21/8/2007 13:50

From the Telegraph a few months ago.

More than 800,000 homes were built last year, beating France, Germany, and Italy combined, leaving a glut of property hanging over the market. House prices have risen 270pc over the past decade to an average price of €276,000, but began to slow sharply late last year. Household debt has risen to 133pc of disposable income from 75pc in 1995.

Manuel Romera, director of Madrid's Instituto de la Empresa, said: "I can see a mortgage crisis building. We have a serious property bubble in this country and everyone is in denial; it's worse than the US." Re/Max International said it had cut prices by 25pc on holiday homes in saturated regions earlier this year. Some four million foreigners own property in Spain.

[isa23] 07/8/2007 17:17

Loan To Value in Spain is 61 to 67%, so unless property prices in Spain fall by 30 to 40% we should be fine.

[simon gordon] 07/8/2007 16:31

Am I correct in thinking that if the Spanish property slumps, as some pundits expect, and some over leveraged 'wealthy' mortgage holders default the NAV will drop, thus hurting the share price?

If this is possible are not the Spanish holdings more risky to EET than the small British tranche.

[cerrito] 05/8/2007 15:41

This is a really interesting situation but I have decided not to be tempted
Two reasons
I hold more QWIL than I care to think about
I have secondary EET exposure through my holdings in ICAT and Investec High Income

..my hunch is that it will drop to say 45 but it will repay careful study/analysis
Hope all goes well

[simon gordon] 03/8/2007 11:08

Thank you..

[isa23] 03/8/2007 09:34

NAV has nothing to do with the value of property. It's the repayment behaviour of property owners that affects NAV. If they can't afford their morgages eet would be one of the first casualities. Conversely, if they overpay or repay their morgages earlier than forcast, cashflow will hurt & divis are affected. Hope this helps

[simon gordon] 03/8/2007 08:29

Quick question: the NAV is linked to the value of the underlying property, if UK property prices fall the NAV falls and the dividend ratio is cut - is that correct?

[isa23] 02/8/2007 16:02

tiltonboy: ever heard Once bitten....?? Never stake more than 1K on anything you're not 100% sure of. I've learnd this the hard way

[davebowler] 02/8/2007 15:01

The best bit for me is that the average loan to value ratio on the underlying portfolio is about 75% -originally-( and many of these loans were taken out years ago)

[simon gordon] 02/8/2007 14:16

Thank you guys!!!!!

[tiltonboy] 02/8/2007 14:11

simon,

ISA has summed much of it up for me, but another point to add is that the divi is in Euro's and that can change the yield to UK holders.

As for buying only 2000 shares, that seems an odd thing for ISA to say, as you may have different investment perspectives than him/her.

tiltonboy

[isa23] 02/8/2007 14:06

once NAV gets back to 1.03 eur divi will increase. Given their recent leverage of 36% (If I remember correctly), divi should be 12% of 1 euro, eg. 12cent or 8.16p. That would be a yield of a tad over 16% at today's price. Before you jump to buy though, let me add that sentiment is extremely negative towards the sector & there's no reversal of this in sight. There is also no guarentee that we won't get another RNS soon saying the UK portion is not performing well so divi needs to be cut to restore NAV etc... For that reason, I am happy to hold on to what I have, but won't add. If you're not a holder, buy no more than 2000 shares, or go for Investec Cap Accumiltor which has eet as its second largest holding (and let me assure you the manager knows what he's doing). Hope this helps

[simon gordon] 02/8/2007 14:02

Hi tiltonboy,

Thank you.

Do you expect the yield to increase in 2008?

[tiltonboy] 02/8/2007 13:46

simon,

The dividend estimate has been cut because of the effects of the new legislation in Italy.

tiltonboy

[simon gordon] 02/8/2007 13:14

Hi ISA,

Are you expecting the yield to increase in 2008.

Reading the press comments in 2006 the yield was expected to be 12% this year and that was when it was priced around 70p.

Why is the yield not higher now?

[isa23] 02/8/2007 12:31

For what it's worth, EET is currently my largest holding. I have suffered significant paper losses on it, but the fundamentals are solid and the recent RNS has confirmed my belief in the company & the area it specialises. Unless we see people default on their mortgage payments in Europe & actually lose their houses (unlikely with a growing economy & interest rates of just 4%!!) we are safe IMHO.

[simon gordon] 02/8/2007 12:19

I just found this from the Telegraph which helps me understand the process:

'Here's another possible solution in the quest for income when bond investments look so depressing - residential mortgage-backed securities.
An investor who buys a RMBS is buying the right to part of the income from a portfolio of mortgages, which are usually sold by a bank into a special purpose entity.

Mick Gilligan, of stockbroker Killick, recommends European Equity Tranche Income as an alternative to high-yield bonds. The fund is being launched by Ocean Capital Associates, a team of specialist investors in European RMBS issues.

The part of the portfolio of mortgages that Ocean Capital specialises in buying is known as the equity tranche. Although it is the first to bear the brunt of any mortgage defaults, the fund's managers believe their specialist knowledge means they can make higher returns by taking on the higher risk. The trust's target yield is 8pc gross in its first year and 12pc thereafter.

"Traditional fixed interest investments appear to offer little value at present," said Mr Gilligan. "The investment properties of the equity tranches of RMBSs mean that these investments tend to be less sensitive to interest rate changes than sovereign debt and have their credit risk spread across households rather than corporate bonds."

[simon gordon] 02/8/2007 10:50

Hi Dave,

EET is looking very tempting.

I am trying to fully understand how it works - is it as follows:

EET - buys a bundled prime mortgage book from a bank.

EET - holds the book thus earning income from the interest book.

EET - pays shareholders a dividend on all income minus expenses.

EET - can borrow capital against the mortgage book to increase levergae. Are they doing this? Or do they hold cash?

If you could please explain if I'm on the right track and any more insight is appreciated.

Thank you

[isa23] 02/8/2007 09:25

Thanks for the info

[davebowler] 01/8/2007 15:44

1 August 2007

EUROPEAN EQ.TRANCHE INC.* [Buy]


--------------------------------------------------------------------------------

EET.L / 51.00p / £51.00m

European Equity Tranche Income will maintain quarterly dividends of EUR 0.02 and grow its NAV in our view. This equates to an annualised euro dividend yield on the current share price of 10.6%. We also expect the 20% discount on the fund to narrow as the market starts to recognise the stability of the underlying assets and income stream.

The attached company announcement (published yesterday) details, for the first time since launch, information on all investments made to date including the average loan to value ratio for each investment and the seasoning (the weighted average age) of each underlying mortgage pool. Both the age of the pools and the loan to value ratios should give investors comfort in our view.

This information has hitherto been withheld in the interests of keeping such information from EET's competition while EET was building its initial portfolio which now comprises 13 investments just one of which is in the UK, representing just 6% of net assets.

EET sold in one Austrian investment for a profit in mid-July which should give comfort to investors that valuations are realistic, based on conservative assumptions and have not been affected by developments in the US.

We have now had a series of updates:
The company has repurchased 2 million shares thereby enhancing the NAV and demonstrating the board's confidence in valuations.
An independent director has recently purchased shares. (Chairman, Robin Monro Daives already has a holding of 500,000 shares)
Ocean Capital Partners has increased its exposure.
A quarterly dividend of 0.02 EUR has been declared as expected and we fully expect EET to pay out dividend of at least 0.02 EUR per quarter going forward which offers an attractive prospective annual yield of 10.6% on the current share price.We also see decent prospect for capital growth.
The portfolio is reported to beperforming in line with or better than expectations.
The portfolio is now well diversified geographically and is exclusively exposed to prime pools of mortgages - primarily in countries where consumers are less leveraged, where loan to value ratios are attractive and where the loans are well-seasoned.
EET has no exposure to sub-prime pools.
EET is probably the only fund of its kind to have reported a positive total NAV return since launch (even after allowing for 2.7% Italian loss).
A discount has emerged reflecting indiscriminate selling and we recommend buying the shares at current levels.

Target price: 65p (~27% above the current share price)

Tom Tuite-Dalton, 020 7012 2012, [e-mail]


--------------------------------------------------------------------------------

Specific disclosures for European Equity Tranche Income:

Arbuthnot acts as broker for European Equity Tranche Income
Arbuthnot has agreed to publish research at least annually on European Equity Tranche Income
Arbuthnot acts as a market maker or liquidity provider for European Equity Tranche Income

[davebowler] 01/8/2007 15:41

31 July 2007


European Equity Tranche Income Limited ("EETI" or the "Company")


Investment Portfolio


Following the latest Investment Update on 13 July 2007 Ocean Capital Associates
LLP, the Investment Manager of the Company, is pleased to provide further
details of the Company's investment portfolio.

As of 30 July 2007 and as set out in the table below, the investment portfolio
currently comprises:

* 13 investments in Continental European prime residential mortgage
backed securities ("RMBS").

* 1 investment in a German granular multi-family commercial mortgage
backed securities ("CMBS").

* 1 investment in a UK, prime niche RMBS.

The key highlights of the the Company's investment portfolio are as follows:

* The current IRR of the portfolio is 10%

* The current IRR of all assets purchased by the Company is between 9%
and 11%

* The above IRR are booked under a base case, loss-adjusted scenario
determined by the Investment Manager and reviewed by the Auditors of the
Company.

* Since inception and up to 30 July 2007 the portfolio has generated a
total cash flow of EUR 13.4 million (including interest and principal but
excluding assets sales). This cash flow is in line with the projections of the
base case scenario.

* On 15 July 2007, the Company sold its investment in a rated security
collateralised by Austrian auto loans purchased in October 2006 for EUR 8.1
million; this sale generated a profit of approximately EUR 25,000. No other
disposals have been made by the Company since inception.

* Geographical Breakdown

Country % of Portfolio Book Value
as of 30 July 2007
--------------- ----------------------

Italy 34%
Portugal 22%
Spain 16%
Netherlands 10%
Germany 9%
UK 6%
France 3%
Total 100%



EETI INVESTMENT PORTFOLIO AT 30 JULY 2007

Current Original Current Underlying
rating by Average Portfolio Originator / Purchase Collateral
Underlying Issue Country SP/F/M LTV (1) Seasoning (2) Servicer Date at
Origination
======================================================================================================================
Lusitano Mortgages Portugal NR 73% 4.7 years Banco May Approx.
3 plc Espirito 2006 21,500 first
Class E Notes Santo SA or
consecutive
lien prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Lusitano Mortgages Portugal NR 74% 3.6 years Banco May Approx.
4 plc Espirito 2006 19,450 first
Class B of Citrine Santo SA or
Finance plc consecutive
Series lien prime
2006-3 residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Lusitano Mortgages Portugal NR 72% 2.7 years Banco Dec Approx.
5 plc Espirito 2006 22,350 first
Class E Notes Santo SA or
consecutive
lien prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Stichting Memphis Netherlands NR/B/B2 92% (5) 3 years ING (and/or July Approx.
2006-1 affiliates) 2006 18,320 first
Class G Notes or
consecutive
lien prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Shield 1 BV Netherlands B/B/B2 80% 5 years ABN AMRO (and/ May Approx.
Class F Notes or affiliates) 2006 154,000
first
or
consecutive
lien prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
FCC Minotaure France NR n.a. 2.3 years Electricite de May Approx.
2004-1 France (EDF) 2006 12,350
Class R Notes housing
loans
to employees
of EDF, GDF,
RTE or
GRTGaz
----------------------------------------------------------------------------------------------------------------------
Sestante Finance Italy NR 69% 3.2 years Meliorbanca May Approx.5,180
Srl SpA (and/or 2006 first lien
(Sestante 2) affiliates) prime
Class C of Citrine residential
Finance plc Series mortgages
2006-2
----------------------------------------------------------------------------------------------------------------------
Sestante Finance Italy NR 69% 2.5 years Meliorbanca May Approx.6,850
Srl SpA (and/or 2006 first lien
(Sestante 3) affiliates) prime
Class B of Citrine residential
Finance plc Series mortgages
2006-1
----------------------------------------------------------------------------------------------------------------------
Sestante Finance Italy NR 70% 1.6 years Meliorbanca Dec Approx.4,750
Srl SpA (and/or 2006 first lien
(Sestante 4) affiliates) prime
Class D Notes (3) residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Ludgate Funding UK NR 80% 1.6 years Mortgages plc Dec Approx.2,750
plc (an affiliate 2006 first lien
(Series 2006-FF1) of Merrill niche prime
Residual Lynch) residential
Certificates and mortgages
Mortgage Early
Repayment
Certificates
----------------------------------------------------------------------------------------------------------------------
Semper 2006-1 plc Germany NR 65% 8.7 years Eurohypo AG June Approx. 647
(4) 2007 loans first
or second
lien
multifamily
commercial
mortgages
backing
137,955
flats
----------------------------------------------------------------------------------------------------------------------
IM Pastor 2 (3) Spain NR 61% 5 years Banco Pastor June Approx.9,776
SA 2007 first lien
prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
IM Pastor 3 (3) Spain NR 67% 3 years Banco Pastor June Approx.8,064
SA 2007 first lien
prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
IM Pastor 4 (3) Spain NR 64% 2 years Banco Pastor June Approx.6,887
SA 2007 first lien
prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------
Provide Gems Germany NR/BB-/Ba1 88% (5) 8 years Eurohypo AG July Approx.
2007 19,996
second
lien prime
residential
mortgages
----------------------------------------------------------------------------------------------------------------------

Source: Offering circulars, investor presentations and investment manager.


Notes:

(1) Original Average LTV is the weighted average loan-to-value ratio of the
mortgage pools at issuance of the transactions.

(2) Current Portfolio Seasoning is the estimated weighted average seasoning (or
age) of the underlying mortgage pools as of 30 July 2007.

(3) These investments are owned by EETI Finance LTD, an Irish Based investment
vehicle managed by Ocean Capital Associates LLP, the investment manager.

(4) The investment is structured as a credit-linked note with Commerzbank AG.

(5) Note that for Memphis and Provide Gems the LTV indicated is the current LTV
as of the latest reporting date.

[davebowler] 01/8/2007 15:19

From release on 31 July 2007

[simon gordon] 15/7/2007 11:50

What would be the impact if the Med economies get hammered by rising rates and a higher Euro:

The current portfolio split by country is as follows:

Country % of portfolio

Italy 32%
Portugal 21%
Spain 15%
Netherlands 9%
Germany 8%
Austria 6%
UK 6%
France 3%
Total 100%

Near-on 70% of the portfolio are in these economies, not safe and solid Northern Europe.

Any thoughts?

[simon gordon] 15/7/2007 11:26

From the Sunday Times:

'Invest in mortgage borrowers

This sounds like a risky strategy given the problems in the American sub-prime mortgage market, but the European Equity Tranche fund invests in European "prime" mortgages – loans thought to have a low risk of default.

The fund, managed by Ocean Capital Associates and listed on the Alternative Investment Market, buys the mortgages from lenders and then sells them on to investors. The loan repayments are basically your return.

The fund is currently yielding 8% to 10% depending on what type of mortgages it buys.

Mick Gilligan of Killik, a stockbroker, said: "The managers have focused on quality and don't have any investments in the sub-prime market. Loan-to-value ratios of the underlying mortgages are typically 70-80%, which provides a cushion if house prices fall."

While risky, this might be of interest to a contrarian who feels fears about mortgage debt markets are overdone.

The fund is not regulated by the Financial Services Authority because it is based in the Channel Islands, so investors cannot complain to the Financial Ombudsman Service. However, it is covered by the London Stock Exchange's listing rules.'