Queen's Walk Investment Share Discussion Threads

[bisiboy] 27/8/2010 15:34

i picked up some of these at 2.00 so i would think 2.01 would be a buy.

think it very unlikely these will fall below 2.00 or if they do will not stay there for long.

i think the weekness is in the main from us shareholders but i may be wrong.

[envirovision] 27/8/2010 14:44

Wonder if the two lots at 2.01 volume total 400K were buys then, looks like it may have been the case

[envirovision] 25/8/2010 02:25

Not sure if i mentioned it but i have started a thread for the new preference shares which come into being on the 17th for current and would be holders, the ticker is supposed to be QWIP and so the thread.

[eeza] 24/8/2010 21:28

Well not much of a difference - hardly worth bothering with tha amendment.

LOL!!!!!!!!!!!!!!!!!!!!!

[insipiens] 24/8/2010 18:59

Supplemtary prospectus - Sorry, I didn't reproduce the italics.....

"PART I
AMENDMENT TO THE TERMS OF THE OPEN OFFER
The following paragraph is found on page 80 of the Prospectus, in paragraph 2 of Part IV:

"Following the issue of the New Ordinary Shares to be allotted pursuant to the Placing and Open Offer,
Qualifying Open Offer Shareholders who do not take up any of their Open Offer Entitlements will suffer a dilution of approximately 2.50 per cent. to their interests in the Company on an undiluted basis, assuming that no Investment Manager Options are exercised, and will suffer a dilution of approximately 2.37 per cent. to their interests in the Company on a fully diluted basis."


This paragraph should be amended as follows (changes are highlighted in italics):
"Following the issue of the New Ordinary Shares to be allotted pursuant to the Placing and Open Offer,
Qualifying Open Offer Shareholders who do not take up any of their Open Offer Entitlements will suffer a dilution of approximately 33.33 per cent. to their interests in the Company on an undiluted basis, assuming that no Investment Manager Options are exercised, and will suffer a dilution of approximately 36.89 per cent. to their interests in the Company on a fully diluted basis.""

[insipiens] 24/8/2010 18:56

zastas - 24 Aug'10 - 11:42 - 384 of 384

Probably because they can't make filings with the SEC unless listed in the US....a requirement of their laws.....

[zastas] 24/8/2010 11:42

What will all the non-qualifying shareholders, mainly those resident in the US, do? I donot fully understand why US citizens/residents are never allowed to participate in these open and rights issues, but it must have something to do with the IRS and/or money-laundering prevention.

Presumably they now can only sell, chiefly at about 2.00 Euro to the bookrunner LIBC who will be able to sell on the Prefs received. And then if you want, after the ex-date on the Ords you can buy these again, and perhaps separately Prefs in the market. All costly and irritating for those few concerned no-doubt. Perhaps this partially accounts for the bout of selling yesterday and more to come. Could become interesting on ex-date to see the initial price-movement on the Ords. I am trying to figure-out whether I could benefit from any volatility here.

As far as the Ords are concerned, you could make a case for them either to run at a lower or a higher yield. Perhaps an assumption of 8% is reasonable, as NAV could increase reasonably too.

[timanglin] 24/8/2010 09:28

I think Cerrito has got it right when he says that the 'old' qwil, was maybe not of an economic size, the costs vs income ratio were maybe too high, potentially if the investments are succesful then this ratio decreases with time in the new 'qwil'. The effect of the OO has been to decrease an increasing share price by 20%, which is depressing. imho.

[cerrito] 23/8/2010 23:15

Marben100 I hear what you say and your points are valid but I will not be joining you in voting against it. I also dislike the Chairman who has so many irons in the fire getting so much..
I very much prefer the present QWIL to the new look one and given the way my portfolio is have no need to do this move up the credit ladder; but I also appreciate that QWIL would have soon got to an uneconomic size and of course I am a minnow so cannot expect to have any sway in things.
My analysis shows I will be better off going into the new offer and that is what I am doing.
While this does not do anything for me it is a cute deal:my understanding is that the Cheyne Fund is in long term run off so the issue of the preference shares should allow them to liquidate alot of their position in QWIL without hammering the ordinary share price and as noted it is more healthy to have a more diversified shareholding structure and the shares should be more marketable.

[marben100] 23/8/2010 18:04

Hi All,

Firstly, concerning the ords, the key problem is that whilst Cheyne have indicated that a dividend will be paid, they have NOT indicated how much that dividend will be, other than to say that dividends on ordinary shares "will be substantially reduced as compared to the dividends that have previously been paid".

The current dividend policy says:

"The Company currently intends to pay out a majority of its net income (but excluding any realised or unrealised surpluses from the sale, realisation or revaluation of investments held directly by the Company) to Ordinary Shareholders in the form of quarterly dividends"

There is NO such statement in the Revised Dividend policy for Ordinary shares, nor any indication of the proportion of income that will be paid out to the combination of Ordinary and Preference shares. Moreover, we know that the company is incentivised to grow the NAV and to keep the market cap low. The latter objective is aided by minimising the payout on the ords.

Of course, one can argue that an increasing NAV is attractive, but in current market conditions more weight is put on investment returns to shareholders. I have seen investment companies (e.g. POL) trade on discounts to NAV around 50% - unless there is a policy to manage the discount by buying back shares or some clear indication of how shareholders will receive a return. Whilst QWIL may buy back shares, no discount management policy has been stated (and, as I've shown, Cheyne are actively incentivised NOT to do so).

I cannot see how the proposed changes will benefit existing shareholders and therefore intend to try to ensure that my proxy votes are cast against resolutions 2, 4, 7 and 8. Given that 75% of votes cast must be in favour of resolutions 2 and 4, and that resolution 2 is a "required resolution" for the placing and bonus issue to proceed, there is a slim chance that Cheyne's proposals can be defeated. I urge all independent shareholders to consider this and ACT ON IT.

Mark

[envirovision] 23/8/2010 11:05

Lets not get to dispondant on the ords though, they are indeed saying they do intend to pay dividends on them (IF THEY CAN). If they were intending it to become a non income share they would simply not be saying that would they!

I guess in the long term it all depends on the returns on the portfolio, if its irregular then maybe there will be "special dividends" declared from time to time.

This is what they have said:
"the Directors do currently intend that the Company continues to pay a dividend to Ordinary Shareholders when it is able and appropriate to do so"

Liberum Capital who are bookrunners here were joint book runners in IERE last year. They did a same kind of deal ie. 7 year prefs however instead of offering a bonus issue they did warrants. IERP prefs have done quite well considering the rather high underlaying risk due to the high leveraged debt they have (which we wont have). Also the ord share price has been ok, not falling below the open offer price and infact at one moment increasing 50% from issue.

So i guess theres always hope :-)

[zastas] 22/8/2010 14:48

I think we should not overlook that capital goes up by about 25%. If, IF the return on new, MBS investment is similar as the current ones, then the total income available for the increased ordinaries goes up too. So, not 32 eurocent but 40 eurocent will be available for pay-out. Or alternatively, part available for an increase in NAV.

So, Marben100 has calculated 18.3 cent for the PREFs. Then about 22 cent is available for the Ords. So about 14 eurocent per Ord. They were recently trading at about 13% yield, so I suppose somewhere between Euro 1 and 1.20 should be its marketprice to settle at in the near future.

The Prefs could be more attractive then we, mostly share-investors, think. Because it will be redeemed in 7 years, esentially it is a 7-year bond. But with the advantage of coming with basic-tax already paid. And this company has no other debt, in particular bank debt which usually sits as more senior secured ahead of bonds in other 'ordinary' companies. So, a bond-equivalent yield of 10% with guaranteed redemption in 2017. In the case of IERP 9%, these are trading above-par and IERE has 10 times as much bank-debt sitting senior to the 30 million Prefs. QWIL could lose 50% of its asset-value without endangering the Prefs. That sounds almost safer than lending to governments, including the UK's, which only pays 3.5% pre-tax. We could be surprised by market-strength by fixed-income buyers, including big funds.

For now I am taking-up only a part of my entitlement, essentially what I have already in cash euros available. I would buy gladly more except that I currently am at my self-imposed ceiling of what I want to have invested as a percentage in a single share. There's more time to re-consider.

So if you do nothing, you should end-up with an ordinary worth about Eu 1.10 and in Prefs £1.25, together about E 2.50, the same as the marketprice before the OO announcement.

That leaves the question how this benefits the current shareholders. For us small ones, not a lot that I can see. But the big one, Cheyne, can get a big capital return now if it off-loads its Prefs. And ofcourse as a manager it will get more fee-income. QWIL is almost following in the footsteps of the splits, with one income share and a growth( variable dividend for now) one. Perhaps the sum of these two will prove to be worth more.

[centipede] 22/8/2010 11:34

I agree that on reflection this seems a poor deal for private investors. More money is going out in management fees and there's also the fee for organising the placing.

It's hard to see if the ords will be worth much as they will not generate much (if any) dividends - this has been their key attraction to me up until now.

You effectively double your money over 7 yrs with the prefs, but we were getting more than this before.

I appreciate there is probably a need for a change in strategy, but that really has very little to do with all of this.

I also am sure that this will go ahead due to the interests of those involved.

[marben100] 21/8/2010 22:55

Hmmmm... another thing that may explain the motivation behind this move: the "Incentive Compensation" formula INCREASES Cheyne's reward, the lower the Company's market cap is (see prospectus p74). That's because it's based on passing a hurdle rate of net income that relates to notional interest income on the company's market cap (as opposed to on its NAV)!

...well they've certainly done a sterling job lowering the market cap already, simply by virtue of proposing this scheme, and thus reducing the hurdle.

What an extraordinary way to misalign the managers' interest with those of shareholders.

Mark

[marben100] 21/8/2010 22:27

OK, thx - I see where you're coming from: it's a different way to look at it. Either way, ISTM that the divvy per previously held share we can look forward to is likely to be considerably lower. I maintain that the deal is lousy, because previously we had a reasonably clear situation, on an attractive yield - now we'll have much less clarity about future dividends (apart from the much smaller pref share divvy)... and Cheyne will be getting more fees due to a higher Adjusted NAV - simply by virtue of the placing/open offer. Funny that.

I also observe that it would be rather tempting for Cheyne to reinvest cash received in excess of that needed to pay the pref divvies, thus increasing the NAV (and hence fees) still further rather than paying too much of it out on ordinary share divvies.


The situation is actually spelt out perfectly clearly on p51 of the prospectus:

"The Company's current investment objective is to preserve capital and provide stable returns to Ordinary Shareholders in the form of quarterly dividends.

If the Required Resolutions are approved by Ordinary Shareholders at the Extraordinary General Meeting, the Company's investment objective will be to provide Ordinary Shareholders with a levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments and to provide Preference Shareholders with stable returns in the form of quarterly dividends."

The former/current objective I am perfectly happy with. I have no desire to gain "levered exposure to a diversified and amortising portfolio of Residual Income Positions and a growing portfolio of Real Estate Debt Investments". The "exposure" I'm happy with - on the basis of it providing a good yield - but I have no desire to be "levered" with no certainty (or even clarity) of income.


I fear that if this goes through, whilst the prefs might be attractive on, say, a 10% yield, who would want to buy the ords? I have not yet found any clarity on a payout from those and suspect it could be very low indeed, so that "levered exposure" is increased by reinvesting income in the fund, rather than paying it out. Studying the "revised dividend policy" on p62 of the prospectus, I suspect the payout will be very low indeed, as a) it's entirely at the Directors' discretion; b) it explicity says: "dividends payable... will be substantially reduced"; c) "the Company may consider making interim dividend payments to Ordinary Shareholders, having regard to the net income remaining after the payment of the Preference Dividends, potential reinvestment of cash or other uses of income at a level the Directors deem appropriate, in their sole discretion, from time to time. There is no fixed date on which it is expected that dividends will be paid to Ordinary shareholders and Ordinary Shareholders should not expect to receive regular interim dividends.

There is no assurance that the Company will declare or pay dividends on Ordinary Shares or Preference Shares and, if dividends are paid, there is no assurance with respect to the amount and timing of any such dividend."

I.E. no clarity on dividends for the Ords whatsoever - and certainly no commitment to payout income received, with the possibility of reinvesting it being explicity suggested.

Harrumphhh...

Mark

[envirovision] 21/8/2010 18:16

From the following calcs.

Theres has been EU8526290.24 for distribution PA prior to this or 32 cents per share.

Theres going to be 49958730 prefs costing £3996698.40 PA or EU4796038.08

so 4796038.08 less EU8526290.24 leaves EU3730252.16 to be split amongst 39,966,984 ord shares. Thats about 9 cents per share. (ok 9.33 to be exact)

9 less 32 cents means the prefs swallow 23 cents.

I'm trying to sum it all up, lousy im not so sure, boring may be a better term? I agree with you run off. I would prefer run off, but lets face it, it was never going to happen anyway was it and the fact is that the returns on these kind of mortgage securities can be quite good as shown in other funds and of course the BOD are probably the most experienced of any quoted European based company you can find in this area.

[marben100] 21/8/2010 18:07

Hi enviro,

How do you arrive at the prefs swallowing 23c of the divvy?

Each 1x ord in issue at the bonus record date will receive 1.25 prefs => 10p of annual divvy. As there will be 1.5x as many ords in issue post- the open offer, that means that each previous ord will generate 15p = €0.183 of pref divvy - once you've stumped up an extra €1 per ord for new shares.

So... instead of current shareholders getting €0.32 p.a. of divvy, as at present, we'll only be getting €0.183 guaranteed + a discretionary divvy on the ords.

This looks like a lousy deal to me and I expect I'll be voting against the resolutions, unless anyone can persuade me that it's in my interest for this to proceed. My reason for buying (recently) was mainly the attractive divvy & the new proposed divvy looks much less attractive to me. ISTM that the main reason for this being proposed is to allow Cheyne to churn the debt portfolio (instead of letting it run-off & returning cash to s/hs), to generate extra fees.

If I've misunderstood, I'd appreciate an explanation of where I'm going wrong.

Cheers,

Mark

[cerrito] 21/8/2010 18:01

Happy to stay on with Cheyne for the ride though not exactly sure where we are going to. Of course given the fall in the share price of the last few days I have no real choice but even with the price ruling on the day of the announcement I would do the same. I assume we are buying the senior tranches of the MBS given that they have to be rated.
More healthy now that the Cheyne Fund's holding goes to sub 50% but like Marben not quite sure why they are not participating in ords and appear towant to sell the prefs..
Interested to see that no structural borrowing unless agreed by an ordinary shareholders' special resolution.
Rather horrified by all the other commitments that the non exec directors have-especially the Chairman who I see is on E120kpa.
As has been stated depending on how the sale of Cheyne's Fund's holdings of the pref go may be interesting to pick some up after flotation. The best guide is the 7 year prefs of IERP which have traded at 100+ and arguably are much lower quality given the amount of senior debt IERE has.They have never had a big seller.
Interesting to see that they are so coy about the dividend to be paid on the ords;my back of the envelope calculation shows that after the extra ords I will be buying for me to get the income I get at the moment, the ords' dividend will have to be E.10/£.08 pa to supplement the pref share dividends.

[envirovision] 21/8/2010 16:57

Hello Rat Attack, thanks for your help. I see my mistake and now agree with you, the NAV on the ords will indeed fall to EU1.61 on the ords.

I'm trying thus to work out what everything will be worth on the open market once the dust settles. The discount to nav was 40% before the ex entitlement. Since fresh capital a tad under two euro after costs is going in 2 for 1, then i would expect the dscount to nav to fall by around a third to 26% SO THE ORDS WOULD TRADE AT 1.19.

That leaves the prefs. Since they will be called in 7 years at £1, it should help a lot and i would not expect an eye watering yeild to call even if we did have a large seller around for an extended period. Certainly a yeild of 10% max or 80p worse case so that 1.25 x 80p £1 worth of prefs of at FX rate EU1.20.

Therfore total worth after dust settles 1.19+1.20 = EU2.39

Now if there were always 32c available for distribution PA and no less or more, then the new prefs will swallow 23 cents of that leaving an adjusted 9 cents left for the ords PA. However the new capital should start producing a return fairly quickly and this figure on a forward looking basis could prove to low.

[marben100] 21/8/2010 13:33

...don't like the look of the proposed changes to the Investment Manager conflicts policy, which seems more likely to lead to conflicts.

[marben100] 21/8/2010 13:07

I observe, from p10 of the circular, that Cheyne ABS Opportunities (CAO), currently holding 59.2% of the shares, will NOT take up its open offer entitlement, thus expecting to reduce its holding to 39.47%.

From p8, CAO may also seek to sell its Pref share allocation.

Does make me a bit suspicious (why are they so keen to reduce?), but a) a more diverse s/h base would be no bad thing; b) if CAO sales depress the pref share price in the aftermath of the issue, could be some great yields on offer.

More reading to do...

[eeza] 20/8/2010 15:11

€2 bid now - so getting near to the OO price.

[insipiens] 19/8/2010 20:11

well I received corporate action notifications for my ISA today - with the acceptance of the prefs and the opportunity to suscribe to the ords (by 6th Sept).

Looks like I'll be accepting the offers. Will look to pick up more ords when the price has settled.

[madmix] 19/8/2010 12:45

envirovision,

From the prospectus :

ISAs
Investors are recommended to consult their professional tax and or investment advisers in relation to the eligibility of the Shares for a stocks and shares ISA.

Ordinary Shares allotted under the Placing are not eligible for direct transfer into an ISA.

Ordinary Shares acquired pursuant to the Open Offer or in the secondary market and Preference Shares aquired pursuant to the Bonus Issue may be eligible for inclusion in a stocks and shares ISA, although the account manager should be asked to confirm ISA eligibility in all cases. The annual ISA investment allowance is £10,200 for the tax year 2010-2011. Up to half of that allowance can be invested as cash with one provider. The remainder of the £10,200 can be invested in a stocks and shares ISA with either the same or another provider.

Well, I'm acquiring shares under the Open Offer. Therefore it would seem to me that both the ords & prefs can be held in my ISA. I think you may be confusing the Placing & Open Offer. As I understand it, those shares not taken up in the Open Offer will be placed.