Fair Oaks Income Share Discussion Threads

[cerrito] 16/2/2018 22:01

In the January monthly released today, they were happy about the court derision on the Dodd Frank risk retention rule.

[cerrito] 16/2/2018 21:39

https://www.ft.com/content/e6a407fe-10b0-11e8-940e-08320fc2a277 Article discusses that CLO issuance still strong this year and the premium over libor for the top tranche continues to fall and despite equity market volatility prices for the lower tranches holding up. Also a three judge panel has just ruled that CLO managers do not need to follow the Dodd Frank stipulation that managers retain a piece of each deal they complete which may boost the market.

[yieldsearch] 11/1/2018 10:01

hTTps://twentyfouram.com/2018/01/10/robust-clos-recession

[cerrito] 30/11/2017 23:11

Just read the commentary for the report as at October 31 and pretty gungho; ie annualized default rate 0.07%; talked about their ability to invest across 23 CLO managers who are all very diversified and also about their strong sourcing capacity which they have fed with a share raise and receiving $14m of early amortizations. The market seems to agree with them given the premium at which

[cerrito] 05/9/2017 21:47

I thought that FAIR's half year report was very clear(unlike the CIFU one which I found v hard going) and I would encourage holders to read it. The Investment Manager very upbeat in his outlook( but to quote Mandy Rice Davies they would say that would'nt they ?) quote The Investment Adviser believes that the Company’s current CLO investments, implemented via the Master Funds, are well positioned to continue to generate attractive returns, given the quality of the underlying portfolios and the continuous active monitoring and management of the underlying credit risk. The Master Funds will also continue to benefit from the optionality inherent in the funding of its control CLO equity investments. We expect to refinance the CLO liabilities of additional CLO positions, increasing the future cash distributions to the CLO equity. We further expect to continue to source new primary investment opportunities for Master Fund II, taking advantage of the current unquote very attractive funding levels for new issue CLOs.

[cerrito] 20/7/2017 16:19

Good discussion of refinancing and resets in the July 14th monthly report.

[cerrito] 24/5/2017 21:46

I have commented that the portfolios of CIFU and VTA have changed quite a bit over the last year and have become more orientated towards income notes. Had a look to see what shift there has been in the Fair portfolio as at 4.17 compared to 4.16 and the answer-as measured by the ratings-is not a lot with the percentage of the portfolio rated BB-, B+ and B being 80% at the end of April this year and Last. For those who have faith in ratings to get the returns one is on FAIR with almost 90% of the portfolio rated B or better seems pretty good going.

[cerrito] 09/4/2017 16:00

Had a run through the annual report. Good description of overall CLO market activity in 2016 and also a good example of the benefits of doing a refinancing but not all that much on the company’s portfolio. I see that a 1% increase in interest rates as at 31.12.16 would impact net assets by £3.4m-ie manageable. I checked to see if like VTA they had to pay a performance fee but then was reminded in note 8 that effectively investment fees are paid by the Master Fund. I am one of the 15% who voted to leave ; am sure that in 2/4 years time, market conditions will get choppy and there will be opportunities to reenter.

[atholl91] 16/3/2017 10:52

Cerrito,Have gone for 2017 as my contact has always believed that M Fuentenbro is one of the top CLO managers around. Cannot think he would want to leave and start again although always possible. He delivered excellent results when at CIFU.

[cerrito] 14/3/2017 12:55

Have you folks made a decision as to take the 2014 or the 2017 shares? Having read the prospectus I am veering towards the 2014 ones. Two reasons. I have no idea how this market will be in over the coming years and am reluctant to take such a long term view. I am sure that in the coming years there will be a market dislocation when I can buy in cheaper The second is I saw the key man provisions and emphasized the point that while management may now-in the words of the Chairman-be nibble will Messrs Coyle and Fuentenebro(the two named key people) want to move on and do other things? and I have no idea of depth of management. Be interested in the views of others. Read with interest the risk section and was reminded that we bear the prepayment risk if underlying borrowers prepay given they can without penalty.

[cerrito] 14/2/2017 21:09

The 4.1% adjusted for dividend increase in January no surprise bearing in mind report posted by davebowler the other day on the VTA thread

[davebowler] 11/1/2017 16:17

Liberum; CLOs Fair Oaks Income Fund (Mkt Cap £250m) 26.4% NAV return in 2016 Event Fair Oaks Investment Fund's (Fair Oaks) NAV per share was $1.005 as at 30 December 2016, a 3.8% monthly return including dividends. The company declared a dividend of 5.75 USD cents per share in December that brings the total dividend for the year at 13.45 USD cents per share. The shares will go ex-dividend on 12 January 2017. The JP Morgan CLOIE post-crisis B rated index was up 4.5% in December. Fair Oaks’ positive monthly performance was driven by both equity and mezzanine investments. Market default rates in the US decreased slightly to 2.06%. Fair Oaks has confirmed its intention to proceed with the proposals under which Shareholders will be offered an option (but will not have an obligation) to extend the duration of their investment, and also with a further equity raise through a C share. The documentation in respect of the proposals is expected to be published in early March, with a deadline for elections under the proposals and applications under the fund raise in late March. Fair Oaks believes that control positions in new CLOs have the potential to offer one of the most compelling investment opportunities in credit markets at this point in the cycle given supportive loan fundamentals and tight CLO liabilities. Liberum view Fair Oaks' 2016 NAV total return was 26.4% validating Fair Oaks' strategy and the significant investment opportunities CLOs present. We expect the positive NAV performance to continue based on the strong credit performance of the equity investments during the year and the opportunistic investment in mezzanine tranches. Fair Oaks currently trades on a 2.7% discount to its December NAV against the peer group average of 3.1%. The current yield is 13.8%.

[cerrito] 14/9/2016 13:21

I had been pondering your question digger61 and I have had no thought of buying more or selling. I do not see a great improvement in the US CLO market and while cable may fall to $1.28 and thus give us a small FX gain do not see it falling much lower. Not surprising that the price fell today if they are returning capital-albeit a v small amount-at at a time when the share price is at a premium to the NAV. PS Congrats to those who bought these in the dark days of Feb and thus enjoying an increase in both the share price and the currency. Nothing earth shattering for me in today’s NAV figures-just steady progress

[digger61] 11/9/2016 15:22

Anybody buying these at the moment?

[cerrito] 29/8/2016 22:02

Been through FAIR’s interims. Given the good monthly info, not all that much new but the following from the Manager’s Outlook Statement and is of interest Quote The commitment period of the Master Fund ended on the 12 June 2016 and the Company will soon commence making principal repayments to investors. Although the bulk of the principal distributions will be made from the second half of 2018 onwards when the Master Fund expects to call its CLO equity positions, it is expected that some principal distributions will be made from quarterly cash-flows received by the Company. For illustrative purposes only, a CLO equity investment which distributes c.20% cash-flow p.a. of which c.15% p.a. is income will generate c.5% p.a. of principal. Principal distributions may be accelerated if, for example, the Master Fund were to sell CLO mezzanine positions that have traded up significantly since their purchase. Unquote Noted in the Cash flow that distributions from the Master Fund in this H1 16 were $26m up from $6m the year before. Cash and Distribution Receivable were $13m at 30.6.16 compared to HI Dividends of $18m. Too bad they did not follow CIFU’s example and tell us the sensitivity to interest rates

[cerrito] 10/8/2016 23:03

Thanks davebowler for sharing that Liberum update Yieldsearch: Your understanding was the same as mine but if you read note 5 in the Annual Report which discusses interest rate risk which shows a falling Libor having a negative effect on P&L. Need to think more. Also note that they say if interest rates fall 1% decline in NAV is $1.8m which needs to be seen in the context of financial assets of $275m.

[davebowler] 10/8/2016 10:02

Liberum; Specialist Finance Fair Oaks Income Fund Stellar 13% NAV return in July Event Fair Oaks Income Fund has announced a stellar NAV uplift of 13.2% to $0.929 for the month of July. The NAV uplift was due to a combination of an improvement in pricing and strong cash flow receipts during the month. The junior CLO markets had one of the strongest months on record with the JP Morgan CLO B-rated Index up 8.4%. The company's equity positions also repriced significantly and generated substantial cash distributions in the month. All CLO equity positions except one distributed cash-flows in July which were ahead of expectations ($18.1m actual vs. $17.0m expected).

[yieldsearch] 10/8/2016 00:42

FT article: https://next.ft.com/content/12567e68-5e1a-11e6-bb77-a121aa8abd95 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.

[dentrias] 15/7/2016 07:33

The fund included comments re impact of Brexit in the June factsheet here: hxxp://www.fairoaksincomefund.com/reports/monthly-performance-updates/2016.aspx

[digger61] 07/7/2016 16:11

Anybody any thoughts on this fund after Brexit?

[cerrito] 13/6/2016 21:28

Have no idea webclick99 and no doubt the manager will tell you if you email them. As I have mine in an ISA not bothered.

[webclick99] 13/6/2016 06:49

Reading the latest Fact sheet, the fund will receive a distribution in June and a substantial distribution in July. Investors can expect to begin receiving principal repayments later this year. Does anyone know how this will work given its principal being returned? Will the share price reduce by the amount of the distribution or are these in effect a special dividend, so the share price not affected?

[cerrito] 15/4/2016 22:26

FAIR's March monthly report out; not much to report. As anticipated NAV was up for the month -by 6.05%; that lagged the JPMorgan CLO single B index which went up 13.39% in the month.

[cerrito] 10/4/2016 20:43

I did see Wirral's involvement and I guess it is through their pension fund though for me FAIR is not an obvious investment for a Local Authority pension fund given its long term outlook and FAIR's investment period is about to end. With Fair out of the investment period the question is how long will it be in existence for and I cannot find any information on how many of the CLO's they have invested in are in run off, what is the average length of the loans they have invested in on a see through basis and what is the prepayment experience. Anyone have any ideas on this??

[danieldruff2] 09/4/2016 06:37

Anyone note from the report that Wirral Borough Council owns 5% of the stock!