Enq 23 �pik Tog Discussion Threads

[steve73] 17/8/2017 12:18

Looks like these are on "sale" today if anyone wants some.. probably as the last PIK's are being sold for cash.

[steve73] 03/8/2017 00:50

As expected the oil price test was not met so we'll be getting the "interest" PIK as additional shares... Note that these are now effectively ex-Div as of 31 Jul.

[steve73] 21/7/2017 12:29

hpcg.. I agree that if oil remains below $50 then this could impact the long term debt repayments.. In that event I would foresee a further restructuring and extending of maturity dates, with perhaps a further premium increase - rather than an outright default.

If oil does manage to trade at much over $50 then the equity is probably the better way to play this. I have a few of both fwiw.

[hpcg] 21/7/2017 09:45

steve - yes, fair enough. The PIK interest payment leads to a wide spread of outcomes, with a lot more upside and a lot more downside. The best upside is PIK continues but the company does sufficiently well that they are repaid in full at term. That isn't impossible because POO isn't going to breach the reversion to cash payment hurdle until 2019 at the very earliest, and I am comfortable that the company does ok at 50 dollar oil, though that doesn't leave any room for error. The worst outcome is that the oil price is not high enough for the company to repair its balance sheet and that the interest payments which would ordinarily de-risk are as much a wasting asset as the purchased tranches. I also take comfort in the current share price, but that can change quickly.

[steve73] 21/7/2017 08:50

hpcg... I think you're underselling these - the following is my understanding...

These bonds pay 7%pa nominal interest semi annually, although following the restructuring last year if the Brent oil price is less than $65 average in the six month period then the interest is paid as additional bonds (Payment in Kind - PIK).

Based on today's quoted bid/offer prices, 74/76p...

You would buy these bonds for 76p therefore the effective interest rate will be 7%/.76=9.21%, although if it's additional bonds being paid, and you want to cash them in immediately then you would sell them for 74p (assuming the price doesn't change) per additional bond received, so the effective interest rate is reduced (it would actually be 7%*.74/.76 or 6.82% if you think about it).

If you buy today and keep them until maturity you'll make a capital gain of 1/.76 or 31.6% on just the original purchase, in addition to any cash interest or additional bonds received PIK.

As there are 12 semi-annual payments before maturity, you could receive 6 x 9.21% or 55.3% in interest (if they were paying cash), which in addition to the capital gain would give you a total gain of 86.9% (which works out as 11.9% APR compounded).

If they pay all remaining interests as PIK (and you keep them invested), you would receive an additional 51% bonds (which is more than 12*3.5%=42%, since you receive 3.5% of all bonds held, including any bonds received as previous PIK), but on maturity you'll get 51%/.76 or 67.1%, giving a total gain of 98.7% (which works out as 13.1% APR). The reason it's higher than cash payments is that you are not receiving any interim cash payments.

None of the above figures include any buying or selling costs which will reduce the gains indicated. These bonds do not incur stamp duty, although PTM payment is still required (if over GBP10k). They were previously traded in blocks of 100 minimum, but this has now been relaxed since the additional PIK has resulted in many holders having an odd number of bonds. Also (as far as I am aware) only whole bonds will be issued as PIK, so if you have 100 bonds, you'll only get 3 additional PIK bonds - so your actual additional bonds will be less than the potential 51% extra.

There is always a risk that the company may default on its bonds, but bonds are certainly way more secure than the equity, although perhaps the equity has a better chance of doubling before these mature in 2023.

All IMHO, NAI, etc...

edit... to add. The next "record date" is 1st Aug, so if you buy before then you'll receive the 3.5% additional bonds on the 15th of August... a nice little bonus!!

[hpcg] 20/7/2017 14:48

YTM or yield to maturity is the key return figure; when you hear on the news channels talk about government bond yields this is the figure they are talking about, not the yield on an individual issue.

So currently the bonds are paid in kind, which is to say more bonds. These, like the main issue are repaid at 100. The YTM is much higher than the effective interest rate, which is current price * 7% because the interest on the interest still compounds at 7% for as long as they PIK. Of course the YTM is always different to the headline yield for any bond not trading at par, but the combination of PIK and the discount to par means that one is only picking up about 5.25% interest, and thus a reduced margin of safety. That 5.25% is at the current trading price, and for the next set of PIK bonds. However the PIK bonds compound every 6 months as if they were yielding 7%.

It is indeed all about what happens at maturity. And all fiendishly complicated.

[blindsquirrel] 20/7/2017 13:39

11%
This is for the interest payment?

[blindsquirrel] 20/7/2017 13:38

Steve,hpcg
Thanks for your answers guys, seems I've got a lot of reading to do.opened the prospectus but it's a bit much to absorb in one sitting lol.
Would the maturity value in 2023 be £100? If so I presume the closer to maturity the price would rise unless the risk of default seems high. The last update from the company talks about focusing on debt reduction and with 7% interest pa this sounds like a decent investment

[11_percent] 20/7/2017 12:29

Next "divi" payment 15th August.

[hpcg] 20/7/2017 12:20

blindsquirrel Also, to complicate things, these are exceptionally sold clean when most bonds are sold dirty. You won't know what those terms mean so look them up! I would also say that if you don't know how and instrument trades then you need to educate yourself before dipping a tow in the water. In addition to general concepts for this security you need to understand the refinance, the current PIK interest, the seniority of the debt, and how you think ENQ will fare under a range of oil price environments and operating risks.
On the flip side these are pretty liquid so selling is not too difficult, but bear in mind that people who know a lot more than you will be selling before you do.

[steve73] 20/7/2017 11:56

Hi again squirrel..

You can buy and sell any point upto maturity (which was extended during last years restructuring to 23 Fed 2023) just like any share, at the current bid/offer price. Note that these bonds usually trade with quite a large bid-offer spread (currently 74.25 - 76.70), and it's usually difficult to trade much within these prices even if you use DMA (at least that's my experience).

The price rises and falls depending on demand just like a regular equity share.

IMO, it's unlikely to trade much above the par (or maturity) value. If it falls excessively (like it did in early 2016), its an indication that the company could default on its debt... I.e. go bankrupt. Bonds are usually more senior in a default than equity, although they probably have a more limited upside than the equity if the company performs well.

Let me know if you need more help understanding the effective value of them.

[blindsquirrel] 20/7/2017 10:18

Hi guys,

Totally new to bonds/notes. Can anyone tell me about the price rise/fall. Also would my money be tied up until 2022 or can I sell. In 2022 would I receive the market value per bond or would I get £100 per bond. What causes the rise/fall in bond price?
Any advice is appreciated.
Cheers

[hpcg] 14/6/2017 08:53

graham - bonds can trade clean or dirty. Bonds are usually priced clean but paid for dirty. In this case it makes sense to trade clean as there is no interest as such. The transition last year was a bit messy, and I imagine that will also be the case when interest payments resume - assuming that happens of course!

[steve73] 14/6/2017 02:43

That's correct... Interest is no longer being accrued on a daily basis, so you pay exactly what you see, like a traditional dividend. Also, unless the Brent Oil price averages over $65 for the 6 months period, the interest is paid as additional notes (at par). The upside is that the "interest" rate has now been increased to 7% per annum (although if you sell your additional notes to release the cash at less then 78.6 you are getting less than the original 5.5% was worth.)

[grahamg8] 13/6/2017 19:58

Anyone tried to buy or sell these recently? Hargreaves say that as the interest is capitalised there is no accrued interest to pay/receive on the purchase/sale. Sounds like a misinterpretation to me, but what do you think?

[steve73] 05/6/2017 02:29

11% - interest is due 6 monthly. Next PIK (since the OP has been well below the payment price) is due 11th Aug.

[11_percent] 04/6/2017 23:50

Mmine have now been consolidated.

Thought we quarterly divi, been a while.

[steve73] 17/5/2017 01:56

Still no sign of the new bonds being listed...and their FAQ has not been updated.

I e-mailed ENQ last week IR to seek some clarification & update, but no reply.

Hopefully be some clarification soon.

edit... ooops missed that late RNS yesterday.

[lonrho] 04/5/2017 19:04

Single trade of nearly 5 million bonds went through at 4pm which looks like a buy, someone showing confidence on a terrible day for the oil price.

[steve73] 04/5/2017 15:31

Latest FAQ (dated 28 April) suggests the additional notes will be admitted to the official list and consolidated with the existing bonds on 8th May.

...just in time for the next interest (or more likely PIK) - record date is 1st Aug if my understanding is correct, and it also appears that interest is not being accrued on these. i.e. It is now more akin to a dividend.

[steve73] 24/4/2017 09:55

Still not got my additional notes despite the FAQ's on the Bonds page of the Enquest web site suggesting they'd be available by the 22nd April.

"EnQuest anticipates that admission of the Additional Retail Notes issued on 15th February 2017 to the Official List and to trading on the LSE's electronic order book for retail bonds will take place around 22 April 2017, just after the publication of the Annual Report on 19 April 2017."

However, I can't find the annual report on the website though...

[hpcg] 02/4/2017 16:06

They are priced at market, not at the issue price.

[11_percent] 01/4/2017 13:36

At last, the interim line now showing in my SIPP.

Showing at a different price from the GBP100.

What is happening.

[hpcg] 20/3/2017 11:21

Steve73 - it might be repeated, but one presumes once they have issued one prospectus then for other occasions it will be a cookie cutter. I still anticipate some amount of delay.

[steve73] 20/3/2017 03:18

Volumes traded have been relatively low throughout the past month, which I suspect is due to holders being uncertain whether they would be selling (and buying, of course) with or without the additional bonds. My broker confirmed that they have been advised of the additional bonds, but did not clarify what would happen if I sold them.

I'm wondering if the slight increase in price on the 16th Feb, (on relatively low volume) was due to the bonds effectively "pricing in" the additional bonds. I thought at first the price drops during this month could have been due to the price resetting as the additional bonds were allocated, but since it was on relatively higher volume days, then perhaps it was genuine selling pressure.

I'm happy holding these for the relatively secure and reasonably attractive interest or capital appreciation, and intend holding to maturity, but it would be nice to fully understand what the situation is just in case there is a need to sell. I'd hope that this period of uncertainty is not repeated every 6 months!!