Fair Oaks Income Share Discussion Threads

[atholl91] 10/1/2019 14:56

Reduction in final Div from 5.75c to 3.45c for 2017 shares. Total Divs for year 11.15c against 13.45 in 2017. Pretty good performance by FAIR.

[cerrito] 02/9/2018 21:42

Long article in today’s Sunday Telegraph on detiorating credit standards in the US loan market-and increase in cov lite loans caused by demand from investors with CLO funds. Cite figures that in 2012 24% of loans were cov lite and 2018 YTD 76% Quotes warnings from Moodys and IMF and comment that default stats and recovery rates will be far worse than what CLO issuers have been touting.
Fair points and the key is and always has been the credit skills of the Managers.

[danieldruff2] 28/8/2018 06:14

Interesting RNS from CIFU today which is being rolled into BGLF

[spectoacc] 28/8/2018 05:56

Agreed re FX although wouldn't look so good the other way! FAIR still paying out big but shares go down.

[cerrito] 27/8/2018 20:09

The Interims a worthwhile read.
The main takeaway for me from the Chairman's statement was the importance of having control of the CLO's and a reminder of the v good default rate.
The Manager's report a v good summary of the state of play of the loan markets; struck by comment that investors not being paid to take incremental credit risk with the premium for junk bonds over senior secured bank loans too small.
I am in FA14(and CIFR) and have quite alot in VTA; as a £ based investor enjoying the current FX rates.

[eudiaceo] 27/6/2018 07:39

FA14 returning capital to shareholders.

"The Company today announces that it will return $6,500,000 (equivalent to 13.978 cents per share) on 6 July 2018 (the "Redemption Date") by way of a compulsory partial redemption of 2014 Shares (the "Fourth Redemption").

As at today's date, the Company has 46,501,283 2014 Shares in issue of which none is held in treasury. On this basis 15.4097 per cent. of each registered shareholding would be redeemed on the Redemption Date.

[eudiaceo] 21/6/2018 10:16

Company updated the factsheet... they may be reading this board! good response time!

"The Company estimates that the total return generated for this investment will be 17% p.a. above its original 15-16% expected at the time of investment"

[grahamg8] 21/6/2018 06:43

Ares XXXV target was originally 15-16%pa not 15-16%. I just hope this is a slip of shorthand rather than a bit of sleight of hand trying to show the return is better than target when in fact it is worse if the return total is 17% not 17%pa.

[cerrito] 28/4/2018 15:42

Had a run through of the Annual Report.
As a 2014 shareholder I must be very much on the minority on this board as not only did 85% go for the 2017 shares last year but institutions dominate the 2014 register with Coller( who as SVG shareholders will remember were so important on how that panned out) having 70% and two other institutions a further 15%. This explains why liquidity of the 2014 shares is so limited. I see that for the 2017 shares there are four institutions with 3% plus totalling 38%.
I also see that the 2014 shares trade currently at 100/106 and the 2017 at 96/98 with the end March NAV of the former at 0.9267 and of the latter at 0.9583c, so the 2014 shares at a big premium.
One suspects that Coller who were pre the reorganization the second largest shareholder after Old Mutual were a moving force behind all of this-important to bear in mind if one buys shares where they have a large shareholding.
No indication in the AR of timing of redemption of 2014 shares.
The Chairman's statement was very pedestrian doing little more than noting the corporate developments and no mention of strategy.


The Investment Manager started out on low default rate saying the fund's equity default rate since start of Master Fund II was 0.14% compared to twelve month industry wide rolling average of 1.72%. The last monthly report said they dodged the bullet of a couple of defaults in March including the fifth largest on record.
The IM report had an interesting discussion on resetting vs refinancing CLO liabilities.

[cerrito] 20/4/2018 21:44

Comments on very strong CLO issuance recently including first half of April and up 2/3rds from 2017 issuance figures. Concern about dilution of credit quality in light of abolition oif risk retention rules. Also demand for floating rate debt but strong supply have pushed prices lower. Ie all in yield of AAA top rated slice up from 2.81% in January to 3.34% now. S&Pflag waving on lower credit quality.

[cerrito] 30/3/2018 12:30

Interesting that both FAIR and VTA are saying in their monthly reports that now right time to increase their exposure to equity tranches.
In the case of VTA their equity tranche at end of February was 22% of the portfolio-up from 19% two years ago and down from the 27/28% of Q2 17.
FAIR give the breakdown by ratings and there has been no big shift over the last 12 months.
Given my exposure to the sector is going down with the rapid redemptions of CIFR looking at buying a bit more VTA.

[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

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.

[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?