Carador Income Share Discussion Threads

[danieldruff2] 22/1/2016 11:47

Sold out yesterday as I figured I could get a similar market busting yield from Shell and much more likely share price increase over the medium term.

One good thing holding shares like CIFU in a falling market is they hold their value a little better than the general market so it becomes advantageous to swap across at some point.

[wirralowl] 22/1/2016 11:37

Thanks, db.

Happy at least to see that the dividend is held at 2.5c and remains covered.

[davebowler] 22/1/2016 11:06

Liberum;
Carador Income Fund
5.4% NAV decline in December

Event
Carador's NAV declined by -5.4% in December 2015 due to mark-to-market losses on CLO equity tranches. We calculate a NAV total return of -8.5% for 2015 (assuming no reinvestment of dividends).

According to the Wells Fargo CLO valuation report, post-crisis CLO valuations fell by an average of 40 points during 2015. Equity distributions will also come under some pressure in 2016 following the recent Libor increase as the cost of liabilities increases but loan yields will remain flat due to Libor floors.

Separately, the company has also announced an unchanged dividend of $0.025 per share for Q4 2015. Total dividends for 2015 were $0.10 per share.

Liberum view
Carador's NAV performance problems continue with a total return of -8.5% for 2015. Given the company's high allocation to US CLO equity tranches we would expect the company's performance to be at the lower end of the peer group range. The NAV decline is however significantly below Fair Oaks which invests solely in US CLO equity tranches. The mark-to-market loss has been particularly acute in H2 2015 for Carador with a NAV return of -13% (vs. -4.4% for Fair Oaks).


Loan price volatility should ultimately be positive for CLOs over the longer term as it offers up attractive reinvestment opportunities and the investment case for CLO equity remains as long as the spread between loan yield and CLO liabilities remains (provided defaults do not rise materially above historical averages).

Carador is trading on a 9.8% discount to NAV. The share rating has steadily weakened throughout 2015 and we see little reason for this to change given the portfolio under-performance relative to peers.

[skyship] 22/1/2016 08:13

So, we knew from FAIR that December was going to be bad news - but what of January?

Interesting that the 2.5c dividend is confirmed yet again, so the yield @ 66c = 15%. We'll stand at c5% discount when XD.

If there were to be asset write-offs, surely that dividend would have been withheld.

So, restoring some sanity to the Mark-to-Market valuations and a normalisation of Markets, these are looking oversold and should recover to the first target of 70c IMO...

[dendria] 22/1/2016 07:38

Dec 15 NAV = $0.7231 (-5.44%).

$2.5c dividend paid 10 Feb 2016 (Ex-Div 4 Feb 2016).

They also state the $10c annual div represents 92.5% of the net income for the year.

[danieldruff2] 20/1/2016 11:39

Couple of recent articles on CLOs

[wirralowl] 19/1/2016 13:57

No problem, Cerrito. Yes, it would seem the market is already presuming they have had defaults, so unless there's a higher than expected amount, hopefully its already priced in by now...? As you say, an update and dividend declaration are both due any time now, I think.

[cerrito] 19/1/2016 13:26

Thanks Wirral Owl for that post
I assume that we will get the CIFU December figures this week; perhaps more important that the December NAV(which one assumes will not be good reading) is a comment from CIFU as to whether or not they have defaults in their portfolio-something they have refrained from commenting on in the last two updates.

[wirralowl] 19/1/2016 12:53

Found this from the FAIR thread - thanks to Yieldsearch & Davebowler:

Yieldsearch 19 Jan'16 - 12:18 - 18 of 18 0 0

Copied from VTA, was posted by Davebowler

Liberum on FAIR;
Event
FAIR's NAV fell by 3.3% in December 2015 to $0.866 as the company's CLO equity positions were marked down in the month because of lower loan prices within their portfolios.

The Master Fund may benefit from the loan price volatility over time as loan prepayments can be recycled into new opportunities at discounted levels (average price of S&P Leveraged Loan Index is 90.5).

The underlying portfolio continues to perform well with zero loan defaults to date and the company's CLO equity positions are expected to make quarterly cash distributions of $14.7m in January 2016 (compared to a projection of $11.3m at the time of investment). Dividends for 2015 were equivalent to 11.5% of the December NAV.

Liberum view
Of the listed CLO fund peer group, Carador and FAIR are likely to have been most affected by recent mark-to-market movements given their high weightings to USD CLO 2.0 equity tranches. The key risks to the realised return of equity tranche investors are loan defaults, Libor rate increases (removing the benefit of the Libor floor) and a decrease in the spread on the loan portfolio. Loan defaults in the market have risen slightly but are still well below historical averages and the 3 month US Libor rate has moved up to c.60bps following the Fed rate rise. The impact of these will be partially offset by the rise in loan spreads which will present opportunities for CLOs that are still in their reinvestment period. FAIR is currently trading on a 7.4% premium to NAV compared to a 10% average discount for the peer group (assuming an average 2% NAV drop in December for peers).

[wirralowl] 19/1/2016 12:46

Decline here seems pretty relentless, on no news that I can find?

[cerrito] 23/12/2015 18:56

What struck me about the report was the increase in defaults in November and I am taking the hopefully not too optimistic stance that if CIFU had defaults they would tell us.

[dendria] 23/12/2015 08:18

Analyst comment on Nov 15 NAV:

N+1 Singer, 21 December 2015, "November NAV"
CIFU's NAV declined 2.5% during November (NAV: $0.7647) bringing the YTD TR to -4.5%. The US loan pricing environment continued to soften during the month with CIFU's 2.0 equity marks declining 3pts (to 64c) while 2.0 Mezz positions decreased 180bps which, while both weak, compare favourably vs comparable CLO benchmarks. December has seen further loan weakness, primarily driven by fears surrounding the recent decision by two US HY/distressed credit funds to suspend redemptions. The Fed finally achieved lift-off last week with a quarter-point increase and, with 3-month LIBOR now trading at c.53bps, two further hikes should see the CLO excess-spread compression fully realised at which point asset yields will move in line with liability costs. The shares trade at a 3.2% discount to November NAV which has likely narrowed to 1.0-1.5% based on MTD price action.

Dexion Capital, 21 December 2015, "Carador Income - November 2015 NAV"
The NAV as at 30 November 2015 was $0.7647 per share, down $0.0193 per share (2.46%) in November and down 4.52% year-to-date. The US loan market was weak during the month, extending the losses seen over the previous few months. Loans were down 0.89% (as measured by the Credit Suisse Leveraged Loan Index), outperforming high yield but underperforming equities, which were generally steady through the month. Loan prices continued to fall, dropping another 1.13 to a near four-year low of 92.69; higher-rated loans fell 0.57 to 98.09 while lower-rated loans fell 2.45 to 67.94.

[cerrito] 22/12/2015 22:06

I see November NAV was down 2.46% to .7647-not surprised given mark to market but too bad no November report yet on the website

[yeild hunter] 24/11/2015 12:40

Has anyone got any thoughts as to why carador has recently underperformed against its peers such as fair oaks

[dendria] 20/11/2015 13:08

Oct 15 NAV = $0.7840. (-3.89% monthly change; -0.82% monthly performance; -2.11% YTD).

Analyst comment:

N+1 Singer, 20 November 2015, "October NAV"
CIFU's October NAV return was -0.82% after adjusting for the Q3 dividend. $15.1m of cash flows ($0.0197 per share distributable income) were received during the month as the bulk of the income notes made payments - including two for the first time. US loan pricing remained subdued even as monthly issuance was the fourth lowest seen over the past three years. Cash remains at 5.7% of NAV with 2.0 CLO equity positions trading in the mid-to-high 60's offering attractive yields for deployment of cash balances and the expected proceeds from the recent call of a pre-crisis position. The shares yield over 13% at a discount of 2.6% to the latest NAV.

Dexion Capital, 20 November 2015, "Carador Income - October 2015 NAV"
The NAV as at 30 October 2015 was $0.7840 per share, down 0.82% in October and down 2.11% year-to-date. Loans did not participate in the rally in risk assets that occurred during the month, with the Credit Suisse Leveraged Loan Index down 0.14%, and though the technical environment showed some improvement, loan prices declined such that the average price of the S&P/LSTA Leveraged Loan Index fell to 93.68 (down 52bps), its lowest level since 2012.

Liberum Capital, 20 November 2015, "-0.8% NAV return in October"
CIFU's NAV at 31 October 2015 was $0.784 which equates to a total return of -0.8% in the month after adjusting for dividends. Market volatility has resulted in mark-to-market writedowns in the portfolio.

[ben12358] 19/11/2015 13:03

Yes, for tdw

[yeild hunter] 19/11/2015 12:34

Has anyone found when purchasing CIFU your broker takes a spread on the sterling to dollar conversion rate?

[skyship] 29/10/2015 10:23

Quite so, but they pay 2.5c each and every Qtr (hopefully), so easy to plan for. Even so, commendably quick I agree.

[cwa1] 29/10/2015 08:28

VERY quick turnaround from XD to pay day. Wish all companies were like that.

[skyship] 29/10/2015 08:13

XD today,,,"The Board has declared a dividend of $0.0250 per U.S. Dollar Share in respect of the period from 1 July 2015 to 30 September 2015....... This dividend is payable on 4 November 2015 to shareholders on the register as at the close of business on 30 October 2015 and the corresponding Ex-Dividend Date will be 29 October 2015.

[skyship] 26/10/2015 13:53

Extensive article on investment trusts in this week's IC. For INCOME - Richard Curling, manager of Jupiter Fund of I.T's recommends CIFU.

[dendria] 21/10/2015 16:59

The other analyst comments on Sep 15 NAV:

N+1 Singer, 21 October 2015, "Opportunities grow as volatility persists"
September proved just as painful as August as the NAV declined 3.33% to $0.8157. Soft pricing in the CLO secondary persisted but CIFU is well positioned to capitalise on improved investment metrics in both CLO equity and Mezz with cash now standing at 5.7% of NAV. Current NAV trends are viewed as a function of MTM volatility and not representative of permanent losses. Loan and CLO markets tend to lag broader market swings so with the VIX now down >50% from early September (currently at the 500DMA), and the US senior loan ETF registering the first notable positive weekly fund flows since April, there is scope for the asset class to rerate. One 1.0 Mezz position was disposed of during the month while one income note distribution was received. A Q3 distribution of $0.025 was declared in line with the target policy (ex on 29-Oct). The shares yield 12.4% and currently trade at a 1.3% discount to September NAV.

Dexion Capital, 21 October 2015, "Carador Income - September 2015 NAV and dividend"
The NAV as at 30 September 2015 was $0.8157 per share, down $0.0281 per share (3.33%) in September and down 1.30% year-to-date. The company has declared a dividend of $0.025 per share (unchanged) for Q3 2015, payable on 4 November 2015, with ex-dividend date 29 October 2015.

[davebowler] 21/10/2015 10:12

Liberum;
CIFU's NAV fell 3.3% in September to $0.8157 per share. YTD NAV total return is now -1.3%. The NAV decline in the month was due to mark-to-market writedowns on the back of market weakness.

In the US market, defaults have remained low and are expected to remain below 1.5% in 2015. Market sentiment affected CLO performance. Post-crisis CLO performance was negative across all tranches in September with the lower rated tranches most affected. In the JPM CLO Index, B-rated tranches returned -2.7% and BB-rated tranches returned -2.4% in the month.

Separately, CIFU has declared an unchanged dividend of $0.025 per share for Q3 2015.

Liberum view
The NAV writedown in the month may not result in permanent losses in the portfolio but it does add to general concerns over performance as the portfolio returns have been relatively poor since the beginning of 2013 given the weighting to CLO equity positions.

CIFU is the first of the listed CLO funds with US exposure to report September figures and we await monthly reports from Volta and Fair Oaks over the coming week. We expect funds with European exposure would have performed better in recent months. In 2015, BB and B-rated CLOs have experienced substantial widening (100-250bps) in the US, but similar rated CLOs are flat or tighter in Europe. Carador is now trading on a 1.3% discount to NAV and the share rating is unlikely to improve until NAV returns begin to pick up.

[pejaten] 21/10/2015 08:48

You can certainly see why the share price dropped in September... Carador' performance over last couple of years has been quite poor relative to other players in CLO market place. Hopefully bottom has been reached. Will be interesting to see performance of Fair Oaks and Volta, especially as Fair Oaks is much later than usual publishing monthly perf

[dendria] 21/10/2015 07:19

Sept 15 NAV = $0.8157 (-3.33%) – giving a YTD performance of only -1.30%.

$2.5c div to be paid 4 Nov 2015 (Ex-div 29 Oct 2015).