Carador Income Share Discussion Threads

[yieldsearch] 10/8/2016 01:41

FT article:

Rising benchmark raises borrowing costs for companies
Higher three-month dollar Libor also affects vast universe of collateralised loan obligations

Interesting article highlighting that CLO have benefited from libor floor on loans and with interest rate increase in the US, the benefit of this libor floor is reducing.
My understanding below, however may be completely wrong: CLO are libor based vehicle, asset (loans) are paying libor and a spread, and the clo notes are all libor based except the most junior piece, the equity, taking all excess cash
It seems that the loans have libor floor (at 1%), therefore when the libor rate were lower than 1pc, the assets were paying 1pc but the liabilities (clo notes) were using a lower libor, hence creating more excess cash for the most junior tranche, the equity. With the gearing in place, this may be material. With USD libor increasing it seems that this extra cash will potentially not available anymore.

Not sure what is/will be the impact on clo funds like Vta, Cifu, Fair, fair to say that it is most likely negative. Really based on their exposure to clo equity piece, and if this increasing interest rate environment was priced in the valuation of those assets.

[digger61] 05/8/2016 13:05

Many thanks!

[yieldsearch] 05/8/2016 12:57

Invested in volta finance, quoted in eur, not in cifu.I am more comfortable with axa than blackstone as asset manager, but that really my view...I believe cifu has been more volatile than vta, i guess because of difference in positionning/allocation. Also from memory cifu manager has increase the cap on clo asset with blackstone as clo manager, which i think is bizarre as you have potentially conflict of interest here (blacktone clipping a fee on the clo and then also on cifu..nice for them no??)Good dvd on both, but really these will tank as soon as credit market are worsening. The structure used here for clo is not that different than the one used for us subprime mortgage, hence it us critical that the asset manager has a good view on industries like oil etc...So view those are credit cyclical.You may want to look at FAIR also, smaller manager and less diversified, but likely more open to questions from investors.Finally if you are looking for yield, the best one on a risk/ return adjusted basis is RECP. Lower yield than above cifu or vta but this is a senior debt on secured loans (cifu and volta are leverage play on unsecured loans)

[rcturner2] 05/8/2016 12:50

Thanks yieldsearch, that makes sense. So they are not buying the bonds per se, they are buying CLOs, hence the higher yield.

[digger61] 05/8/2016 12:33

Thanks for that Yieldsearch. Are you an investor.....?

[dendria] 05/8/2016 12:28

CIFU invests in CLOs. A key factor is default rate - this is still historically very low and due to creep up but CIFU exposure to oil/energy is only around 3%.

[yieldsearch] 05/8/2016 12:23

Rct: cifu invest in equity and junior pieces of CLO.Clo are collateralised loan obligations: i would give an example. Take one asset manager, building a portfolio of corporate loans, mostly low investment grade or non investment grade. He is issuing debt secured by this loan portfolio (clo debt) that debt is tranched into multiple tranches, with each different ratings and priority of payment ( senior repaid first, and usually rated AAA). There is a large market of clo issuance, asset manager, and corporate loans. Cifu (like volta) would typically buy the most junior tranche called equity or the subordinayed tranches. Thoses are high yielding because are structurally subordinated.So all in all think of cifu as a portfolio of leveraged positions on corporate/leveraged/high yield loans. Due to the embedded leverage of the clo, if the market price of the underlying loans is down, the nav value of the equity piece will be down much more, due to the leverage. Market was nervous with the exposure to oil industry. Dont think cifu is invested in distressed assets

[rcturner2] 05/8/2016 12:05

Thanks digger, appreciate you taking the time.

[digger61] 05/8/2016 11:47

It is a closed end investment trust and it invests in distressed US debt. So not for widows and orphans.....but my wifes SIPP :-)

You can generally see the ten biggest holdings and need to understand the business behind them. Interestingly I had someone do this and it did not flag up immediate concerns as to the underlying assets the manager has selected.

Div was 10 cents but this year has been lowered to 9 cents with any extra picked up in the 4th quarter payment. Whether capital remains intact remains to be seen with this level of distribution.

Positives - trading at a discount to assets and lovely green back dividends!

[rcturner2] 05/8/2016 09:15

What's the history of the yield, have they been able to maintain the dividend in all years?

From reading the fact sheet this is a fixed income trust, how come the yield is so high? What bonds are they actually buying to get that sort of yield, or is it generated through gearing/derivatives?

[digger61] 05/8/2016 08:57

9 cents on a purchase price of 67 cents is 13.43'/, close enough!

[rcturner2] 05/8/2016 08:54

On trustnet, the yield on this IT is shown as 14%, is that correct?

[digger61] 28/7/2016 18:07

Very little drop on going XD today.

[dendria] 25/7/2016 18:14

Analyst comment on Jun 16 NAV:

N+1 Singer, 21 July 2016, "Q2 dividend of 2.25c declared, re-emergence of discount"

NAV performance continued to be strong in June (+1.56%) to 69.08c, taking YTD gain to 2.68%. Q2 dividend of 2.25c declared, ex dividend 28th July, and payable on 3rd August. Discount has re-emerged at end of June shares stood on a 9.5% discount.

Fidante Capital, 21 July 2016, "CIFU - Carador Income - June 2016 NAV and dividend"

Negative returns in US loan markets in the first two months of 2016 have been succeeded by a significant risk rally over the last few months. Indeed, Carador's solid performance in June takes the company's NAV return since the end of February to up c. 14% (total return). The share price has rallied 10% over this period, closing yesterday at a 5.5% discount to the 30 June 2016 NAV, and the shares are yielding an attractive 13.8% (based on the last dividend).

[dendria] 21/7/2016 07:55

Discount around 8% on the mid.

[digger61] 21/7/2016 07:45

Bought 100k earlier this month so feeling pleased! And thank you dendria!

[dendria] 21/7/2016 07:39

Jun 16 NAV = $0.6908 (+1.56%). Monthly = +1.56%. YTD = +2.68%

Div $2.25c. Paid 3 Aug 16. Ex-Div 28 Jul 16.

[pejaten] 21/7/2016 07:25

Outperformed market and other similar companies for first time in a while. Positive return in June when fair and vta were both down encouraging. Markets have rebounded strongly since June so Carador must now be trading at a big discount to NAV

[dendria] 04/7/2016 14:01

Back trading at a discount & you get paid in USD. I'm going to top up shortly.

[digger61] 04/7/2016 12:47

Any fresh thoughts on this? Am thinking of a purchase...

[dendria] 22/6/2016 13:12

Analyst comment on May 16 NAV:

N+1 Singer, 22 June 2016, "Positive performance in May, but rally slows"
Following on from a strong NAV performance in April (+1.8%) after allowing for dividend distribution, CIFU continued to deliver positive NAV performance in May (+1.61%), with the discount margins of US post crisis CLOs tightening slightly at the top of the capital structure. Net new issuance remains low, and therefore secondary market is experiencing a technical squeeze.

Fidante Capital, 22 June 2016, "Carador Income - May 2016 NAV"
The NAV as at 31 May 2016 was $0.6802 per share, up $0.0108 per share (1.61%) in May and up 0.90% year-to-date. The company received net cashflows of $17.4m (or $0.0320 per share) during the first two months of Q2 2016 ($20.1m in the first two months of Q1 2016). The weighted average annualised cash on cash payments for the income notes during April and May 2016 were 31.25% based on the latest valuations. Of the cashflows received on the income notes during the two-month period, 31.4% was allocated to principal (January and February 2016: 33.99%).

[dendria] 22/6/2016 07:20

May 16 NAV = $0.6802 (+1.61%). Monthly = +1.61%. YTD = +1.11%.

[cerrito] 24/5/2016 19:36

I note that despite strong market in March and April the 30.4.16 NAV is below that of year end 2015- adjusted for dividends- and roughly 75% of the March 2015 NAV-unadjusted for dividends.

[dendria] 23/5/2016 12:18

Analyst comment on Apr 16 NAV:

N+1 Singer, 23 May 2016, “April NAV rebound +1.8%, premium rating restored”
Since the start of the year Carador NAV has come under pressure falling from $0.7231 as at 31st December to $0.6694 as at 29th April a fall of 7.4%. However the most recent nav has seen a recovery of 1.8% over the past month. This continues from the 4.9% nav uplift during March. The share price has reacted favourably having moved up from $0.595 to $0.6925 over the period, a 16.4% increase and the premium rating has been restored.

Fidante Capital, 23 May 2016, “Carador Income – April 2016 NAV”
The NAV as at 30 April 2016 was $0.6694 per share, up 5.22% in April and down 0.70% year-to-date. The company received net cashflows of $15.3m (or $0.0281 per share) during the month ($17.8m in January 2016). The weighted average annualised cash on cash payments for the income notes were 33.73% based on the latest valuations. Of the cashflows received on the income notes during the month, 33.36% was allocated to principal (January 2016: 33.40%).

[dendria] 23/5/2016 07:45

Apr 16 NAV = $0.6694 (+1.79%). Monthly performance = +5.22%