Fair Oaks Income Share Discussion Threads

[cwa1] 15/11/2021 09:39

Hoping db doesn't mind...

davebowler15 Nov '21 - 09:09 - 553 of 553
0 1 0
Liberum on FAIR -
Strong quarterly cash flows

Mkt Cap £201m | Share price $0.665 | Prem/(disc) -0.8% | Div yield 15.0%

Event

Fair Oaks Income's NAV per share as at 31 October 2021 was $0.670, representing a 1.9% NAV total return in the month (+22.6% YTD).

US and European loan markets generated returns of 0.3% and 0.2% during the month. Defaults remain very low with the 12-month trailing default rate in the US declining from 0.44% to 0.35%. European default rates also fell from 0.85% to 0.75%. Strong primary CLO issuance in the US and Europe has continued in Q4. Primary AAA spreads have remained stable at Libor +1.18% in the US and Euribor +0.99% in Europe.


All of FAIR's CLO equity investments made their scheduled quarterly distributions in October. Master Fund III received $18.8m in distributions, representing a 15% increase over the same period in the prior year. The portfolio has benefited from reduced exposure to lower coupon CLO mezzanine investments and strong cash flow generation from the CLO equity positions. Two recent CLO equity investments were not scheduled to make a distribution in October and their first payments are expected in January 2022.

Liberum view

Strong cash flow generation leaves FAIR well-placed to maintain its 15% dividend yield. The benign default environment and tightening in CLO spreads has created a favourable environment for CLO equity performance. The outlook for defaults remains low due to strong fundamentals and the maturity profile of the market continues to be pushed. The over collateralisation test cushion in FAIR's portfolio has steadily built up since mid-2020. We estimate an increase in the average OC test cushion in FAIR's US CLO equity investments from 2.2% in July 2020 to 3.9% currently. The arbitrage spread of the portfolio over the cost of financing has also increased steadily since mid-2020 to 1.93%, the highest level since August 2016.

[cwa1] 15/11/2021 07:28

Monthly Announcement of Unaudited Net Asset Value

As at the close of business on 29 October 2021 the estimated unaudited Net Asset Value of the Company's Shares (including the impact of the dividend announced in October) was as follows:


Fund Name NAV Monthly Performance
Fair Oaks Income Limited
Realisation Shares USD 0.6697 1.90%
------------ --------------------
Fair Oaks Income Limited
2021 Shares USD 0.6704 1.92%

[cwa1] 04/11/2021 08:14

XD today, pay day 18/11

[grahamg8] 26/10/2021 07:38

Edit
In case anyone was puzzled. I am a long term holder but not since 1915. That's taking things a bit far. My only mitigation is that I have been doing some family tree research particularly during WW1. Now I'm moving back into the 1800s and possibly 1700s in a couple of weeks. Perhaps I managed to raise the odd smile, I hope so.

Original post
Boystown, I hold FAIR but not VTA. In since 1915 with a break from January 1917 to February 1918. FAIR have their fair share of price slumps. Change the default chart to 7 years to get a feel for it. The low point in April 2020 was 23c. So add in currency fluctuations and for Hargreaves higher dealing costs as they will only trade on the phone. All in all these imo are not suitable for trading but are buy and hold for the long term. Top up when there is a big slump as Yieldsearch says. Which is psychologically difficult when in a sea of red.

[yieldsearch] 25/10/2021 11:55

Yes hold Fair and vta

[boystown] 25/10/2021 09:41

Many thanks for the Yieldsearch - it's very helpful but just makes me realise how much further out of my depth than I thought I was!

I already have a few VTA at a good profit (currently anyway :-), but may stay further within my comfort zone of looking at individual company accounts etc., in general.

Out of interest - do you hold any FAIR?

[yieldsearch] 24/10/2021 17:17

Boystown your 181: fair is a portfolio of junior positions of clos. if you are not familiar with clo, assume you own a portfolio of loans, and someone else provided you 95% leverage on this portfolio to buy (yes 20x), and you own the 5%.

The loans are paying interest + margin, and you have to pay interest +margin on the 95% leverage. then what is left over is used to pay the manager (Fair), costs and then the rest is your dividend. it is really an arbitrage play, with the manager taking a super senior skim

So there is nothing "wrong" with a dvd yield of 14%, just that you have a massive leveraged structure (leverage on a portfolio of loan). so if x% of loans start to default or y% have a full loss, the first thing is that the dvd will be reduced then stopped, and ultimately your 5% (ie Fair listed equity) can be wiped out.

The structure have some protection in place, so it is difficult to quantify the x% or y% above. There is some diversification per region, per industry etc but really macro economics are deteriorating, this will be repriced down.

If the loan market starts to show poor performance, it is likely that ppl with more direct information than you or me will sell Fair (ie people who can see the clo reports, people tracking crossover or cds markets etc..). Liquidity most likely will reduce.

As an indication of volatility, you may want to look at volta finance, listed in Amsterdam and London. Similar to Fair, bigger, managed by AXA. Long term chart is showing that it was trading at Eur 9.4 in 2007. during the financial crisis 2008-09, it traded at 0.50. yes 95% decline. i am not saying that it can happen again, but it does show the volatility. Also show that the best time ever to buy this is just after a massive crash!

[boystown] 23/10/2021 13:50

That's very helpful grahamg8 and confirms my thinking that it's worth a small allocation with money I can afford to lose.

[grahamg8] 23/10/2021 10:24

Boystown you are basically right but quality companies are not borrowing money at 14.5% for the fun of it. To get such a high yield the credit ratings are lower and the security given is down the pecking order. We rely on the managers to pick the right loans at the right price and then keep a keen eye on the default rate. Fortunately FAIR seem to be pretty good at this. They also regularly reset the terms to squeeze out a bit of extra yield - Signal Peak being the latest example.

Final wealth warning. Many of the CLO's are not tradeable and so their valuation by FAIR is an educated guess. The complexity is quite mind blowing enjoy a read of the pricing explanation in the annual reports, paraphrasing: level 1 there is an active market, the price is unadjusted; level 2 either no active market and price based on a similar product or "other inputs"; level 3 no observable market and no similar product price is "adjusted".

If you haven't been put off yet then these shares make a good high yield option along side other investments. High returns = higher risk, no free lunches here.

[cwa1] 22/10/2021 10:03

Portfolio Update

Fair Oaks Income Fund Limited (the "Company") is pleased to announce that FOMC II LP (the "Master Fund") has completed the reset of Signal Peak CLO 4, a CLO backed by a portfolio of US broadly syndicated, secured loans.

The original purchase of Signal Peak CLO 4 ($29 million par value, formerly called as Mariner CLO 2017-4) was completed in October 2017 with a weighted average coupon for the CLO financing of Libor+1.82%. The original investment period for Signal Peak CLO 4 was scheduled to end in October 2021. After the reset, Signal Peak CLO 4 will benefit from a weighted average coupon of Libor+1.77% and an investment period ending in October 2026.

As a result of the reset, the potential total return for this investment, since inception, as estimated by the general partner of the Master Fund (the "General Partner"), will increase by 4.2% p.a. (see Note 1).

In addition, as part of the reset transaction, the documentation of the investment has been updated to include ESG-focused investment restrictions.

[boystown] 19/10/2021 14:30

There must be something wrong here if the yield is c.14.5%?

I'm out of my depth, admittedly, but wouldn't mind making a small allocation as there are a few excellent posters on here. So can anyone enlighten me; what exactly are "European broadly syndicated, secured loans"? Presumably, these are - ultimately - loans to many and diverse European corporates secured against their asset base?

[cerrito] 18/10/2021 17:40

CWA1
I contacted Fair who contacted Liberum who said OK for me to join if I was a professional investor. I double checked latest FCA guidance and said I wss
Fair passed my details onto Liberum

Be interesting if I hear from them.

[rambutan2] 14/10/2021 15:21

What a reset! Well done the management.

Yes, very much agree on the idiot punters point.

[cwa1] 14/10/2021 13:15

Well, us idiot punters can't be trusted with that sort of information, can we?

[stemis] 14/10/2021 12:02

There's a general issue with house brokers, paid for by the company (so out of shareholders, i.e. our, funds) who then only release their work to a certain class of shareholder (i.e. institutions).

[cwa1] 14/10/2021 11:35

Would be interested to hear what the reply is Cerrito

[cerrito] 14/10/2021 10:34

CWA1
Just caught up with your 173 and have emailed FAIR asking how people like me who are FAIR shareholders but not Liberum clients can access this.

[cwa1] 14/10/2021 09:53

Courtesy of davebowler from the Volta thread:-

Liberum on FAIR _
Fair Oaks Income

Enduring arbitrage opportunity

Mkt Cap £200m | Share price $0.675 | Prem/(disc) -1.2% | Div yield 14.8%

Event

Fair Oaks Income's NAV per share as at 30 September 2021 was $0.683, representing a 1.5% NAV total return in the month (+20.5% YTD). US and European loan markets delivered positive returns of 0.7% and 0.4% during the month. The trailing 12-month default rate in the US loan market has fallen to 0.4%, the lowest level since August 2011.

US CLO issuance reached a record in September ($130bn YTD). Importantly, primary AAA spreads have remained stable at Libor +1.19% in the US and have fallen slightly to Euribor +1.01% in Europe. The manager reset the CLO liabilities of Fair Oaks Loan Funding III, reducing the weighted average coupon from Euribor +2.01% to Euribor +1.79%. The investment period has also been extended by almost three years. The expected return on the investment has increased by 4.8% pa.

The current valuation of the CLO equity positions implies relatively low cash flow multiples. The average cash flow multiple of the CLO equity tranches is 3.5x, compared to 4.8x in January 2020.

Liberum view

FAIR's portfolio has generated strong cash flows in 2021 and we see this as a compelling entry point for a fund offering a 15% dividend yield and double-digit prospective NAV returns. The maturity profile of the market continues to be pushed out, reducing the probability of default in the near term. The arbitrage spread of the portfolio over the cost of financing has increased steadily since mid-2020 to 1.91%, the highest level since August 2016. The benign default environment and tightening in CLO spreads has created a favourable environment for CLO equity performance. We also note the pricing on the reset of Fair Oaks Loan Funding III was narrower than Blackstone's Deer Park CLO (which priced on the same day). The fund has three investments in CLOs run by the investment manager. These have demonstrated strong credit performance and achieved attractive funding costs.

[cwa1] 01/10/2021 13:03

Hi db

Many thanks for that as usual. May I ask, is the date referred to-25/10/21-referring to some kind of upcoming analyst meeting/is it available to joe public?

Cheers

[davebowler] 01/10/2021 09:13

Liberum;
Investor Update




Date: Monday, 25th October 2021

Time: 15:00-16:00 BST / 10:00-11:00 EDT

Management Host: Miguel Ramos Fuentenebro – Partner & Roger Coyle - Partner

Liberum Host: Andrew Davies

Summary:

Fair Oaks Income invests in a diversified portfolio of US and European CLOs managed by a number of different managers. The CLO portfolios consist primarily of US and European floating-rate senior secured loans. The manager has a flexible mandate to capitalise on relative value opportunities across the CLO structure. The fund is managed by an experienced team and has delivered an 18.7% NAV total return YTD. The company offers a 14.5% dividend yield and the favourable outlook for returns is underpinned by low default expectations.

Investment Case:

14.5% dividend yield from a highly diversified portfolio of CLOs with more than 1,000 loan issuers
New Master Fund is targeting a 12-14% NAV total return over the life of the fund
Delivered 18.7 % NAV total return YTD in 2021
High quality management team with over 60 years’ experience in credit markets and more than $3bn of AUM
Favourable market conditions with a low expectation of default rates and tightening credit spreads supporting valuations
Shareholder-friendly structure with realisation opportunity at the end of investment period
Potential for enhanced returns on CLO equity positions from refi/reset opportunities
Flexible investment mandate allows the manager to modify exposure to debt and equity tranches and take advantage of market dislocations

[stemis] 16/9/2021 14:02

Doesn't seem to be doing anything for the share price though (although to be fair, I'd be happy just collecting a 15% yield)

[cerrito] 16/9/2021 13:35

davebowler has posted a gung-ho update on Fair by Liberum on the VTA thread

[grahamg8] 09/9/2021 07:21

About as uninformative as it is possible to get and still claim this is an update.

[cwa1] 09/9/2021 07:14

Half year report...



Highlights

-- The Company's Net Asset Value ("NAV") return per 2021 Share was +17.1% (30 June 2020: -33.3%) for the six month period ended 30 June 2021 on a total return basis (with dividends reinvested).

-- As at 30 June 2021, the Company's total market capitalisation was US$317 million, comprising US$276 million of 2021 Shares and US$41 million of Realisation Shares.

-- The Company's 2021 shares closed at a mid-price of US$0.6675 on 30 June 2021. The 2021 Shares traded at an average discount to NAV of 1.76% during the six month period ended 30 June 2021.

-- The Company's Realisation shares closed at a mid-price of US$0.6650 on 30 June 2021. The Realisation Shares traded at an average discount to NAV of 1.71% during the six month period ended 30 June 2021.

-- On 19 April 2021, the Company announced the result of its reorganisation proposal, being that 62,562,883 2017 Shares had been elected for re-designation as Realisation Shares, representing 13.4% of the 2017 Shares in issue, and 405,815,477 2017 Shares were re-designated as 2021 Shares, representing the balance of 86.6% of the 2017 Shares in issue (including 650,000 shares held in Treasury). The purpose of the reorganisation was to allow those Shareholders who wished to extend the life of their investment in the Company beyond the planned end date of FOIF II LP ("Master Fund II"), to be able to do so by having their 2017 Shares re-designated as 2021 Shares, with such 2021 Shares investing in a new master fund, FOMC III LP (the "Master Fund III"), which will have a planned end date of 12 June 2028 and an investment objective and policy substantially similar to that of Master Fund II.

-- The Company declared dividends of 4.75 US cents per 2021 Share and Realisation Share in the six month period ended 30 June 2021. Cumulative dividends since the inception of the Company per 2021 Share are 71.55 US cents.

[cwa1] 21/8/2021 23:43

Lo Cerrito

No, I took a small slice of the pie myself, so your definitely didn't get mine 🙂