Fair Oaks Income Share Discussion Threads

[spectoacc] 15/4/2020 09:23

Thanks @Yieldsearch. Was just surprised it halved in what, about a week at the end of the qtr. Without the Fed having our back, could have halved and halved again by 15th April. Is the sheer rapidity of it I find terrifying, 2008 was really 2007/2008, months if not a year.

[yieldsearch] 15/4/2020 09:17

SpectoAcc: Yes it can be surprising but really due to the nature of a clo. It is a highly leveraged vehicle,slicing the income received to pay each level of debt issued, with the equity tranche (ie Fair) being the most junior and receiving the highest return. Cash can be diverted away from the equity tranche based on a large number of test: rating, over collateralisation, market value etc etc. Here Fair decided to stop dvd, i guess driven by the nature of the clo, the income for the equity piece is subject to the satisfaction of numerous test ( most likely average rating is one of them). All in all, the equity piece of a clo can suddenly receive no interest and potentially face write down (some loans may default, losses etc). a decline in value of 50% is realistic and really could be more (think of it as a bond that was receiving coupon, not anymore, with principal to be received on time, not anymore with potentially some writedown). If you look at the 15 year price chart of volta finance, you will see how volatile it is. So while the Fed is basically a buyer of last resort in high yield bond (yehhaahhhh!!!), I am not sure the effect of this support on downgrade (and subsequent effect of downgrade on clo test/payment of dvd). So dvd may not be reinstated quickly. the only benefit of fair is the receipt of dvd, we could end up with a high price (fed propping up) and no dvd (rating downgrade action) Clearly this will reach a bottom eventually ( i guess 2-4months) and may be a very good recovery play, but it seems too early

[spectoacc] 15/4/2020 07:42

Before the taxpayer bailout! Strewth. And that's only to 31st March, ie without US taxpayer, how much worse was it getting in April? "As at the close of business on 31 March 2020 the estimated unaudited Net Asset Value of the Company's Shares was as follows: Fair Oaks Income Limited 2017 Shares USD 0.3643 Monthly performance -50.52%

[spectoacc] 13/4/2020 14:56

@Yieldsearch - preposterous isn't it. We went through the looking-glass in 2008, now we seem to be at the Mad Hatter's Tea Party (no relation to the US Tea Party). @Cerrito - my hope is FAIR will "play" it well - ie sell some otherwise-bust high yield, covenant lite to the US govnt buyer. Then perhaps return the cash. Stuck in some consumer loan rubbish but all the corporate, CLO etc getting nicely but farcically supported.

[yieldsearch] 13/4/2020 13:04

SpectoAcc /Cerrito: the US tax payer has really bailed out the private equity sector, and indirectly propped up the market price of leverage vehicle such as fair, volta etc. Prior to covid, we had a market of covenant lite debt structures, zombie corporate that would normally go bust save for the cheap funding. Now, it sounds like the measures taken by the central banks are really nationalising the private debt sector (well the high yield.high risk sector so far). Zombie corporate are the norm now

[cerrito] 13/4/2020 11:36

SpectoAcc That is the way I see it as well. My current feeling is to stay with what I have especially as there are so many other situations to look at. There is a good case to take advantage of this Fed inspired rally to sell and a good case to buy more. Given the current illiquidity in the shares, a bit theoretic.

[spectoacc] 13/4/2020 08:21

The more I read, the more I think the US taxpayer has bailed out my small shareholding in FAIR.

[spectoacc] 09/4/2020 16:50

The Fed has got our back. Not sure how I feel about that but.......

[yieldsearch] 09/4/2020 16:34

Jay Powell said the Federal Reserve would use its powers “forcefully, proactively and aggressively” until the economy recovers from the coronavirus shock, as the US central bank moved to offer an extra $2.3tn in credit and support the market for high-yield corporate debt. High yield corporate market supported by the Fed. i guess explain the rally today..

[spectoacc] 09/4/2020 11:26

Perkier, & someone just paid full ask for 80k. Edit - and now a 10 cent, 25% spread.

[cerrito] 08/4/2020 13:31

Thanks rambutan2 for your detective work here. I have just caught up with the Dryden webinar which I thought was very good and reccomend people listen to it. Interested in the comment that until last Friday at least there had been no forced sellers; not surprised that they commented more than once that the market had bifurcated between high and low grade;were bracing themselves for an increase in their CCC exposure due to downgrades. The way I heard it was that they went into this with 15%CCC and reckon this will peak at 25/37%; also increase in defaults which for the European book started out at zero and will peak they estimate at 6/7%...although not clear if this was a payment default or a technical one; bid/offer trading spreads on high quality was between 2 to 3 and low quality between 5 and 10-no surprise for me there. There will be a time to get back into FAIR-though as a sterling investor I need to be aware of cable. I think it will fall further,

[rambutan2] 02/4/2020 22:30

MGCI comment: hTtps://docs.mandg.com/docs/ciit/Covid-19-Update.pdf

[rambutan2] 02/4/2020 21:06

Hunting for any info/insights, so signed up for this with no hassle: FAO all European Dryden CLO investors: PGIM will be recording and uploading a market update that all current Dryden CLO investors are invited to download and listen too. The webinar will be available Friday 3rd April at 10am. Please find attached the webinar registration link below. https://investegate.co.uk/dryden-48-euro-clo--irsh-/rns/european-dryden-clos---investor-update/202004011635424752I/

[spectoacc] 02/4/2020 14:24

Seemingly destined to tank on massive spread. Going to be a while before FAIR shakes out.

[cerrito] 01/4/2020 00:02

Thanks again Rambutan for that. I note his comment that at the moment no liquidity for equity tranches and little for B which will make valuation interesting. Interesting the comment in the Oak tree discussion that so far they have seen little forced selling which is my reading and the good security cover the BB tranches have in a CLO.

[rambutan2] 31/3/2020 21:03

CLO commentary: hTtps://twentyfouram.com/tag/clo/

[spectoacc] 31/3/2020 13:58

Comedy spread on FAIR now.

[cerrito] 31/3/2020 13:49

I can understand what SMIF are doing but I wo set how you measure NAV in these markets. rambutan 2 Thanks for the Oak tree link.

[rambutan2] 30/3/2020 20:29

Fairly recent from Oaktree: htTps://www.youtube.com/watch?v=kl6wE_kEr4M

[rambutan2] 30/3/2020 20:22

SMIF today: Company Update The credit market has endured significant volatility over the past month as market participants have reacted to the economic uncertainty brought about by the effects of the Covid-19 pandemic. Forced and indiscriminate selling has resulted in unprecedented volatility that in turn has created the opportunity to source assets that have been otherwise unavailable to investors for almost a decade. The higher yields available for selective credits in the current market have enabled the Board of Directors of the TwentyFour Select Monthly Income Fund to approve the issue of 20.9m new shares to meet specific investor demand. The estimated mark-to-market yield of the portfolio as at Close of Business 25th March 2020 is 13.01% based on NAV (gross, GBP hedged, current yield-to-worst). https://investegate.co.uk/twtyfr-selmth-inc-fd--smif-/prn/company-update/20200330155554PCB4D/

[spectoacc] 30/3/2020 15:36

They're only a small position for me (smaller now!) but the "long term" comment at the end seems a bit ominous - not going to be any swift return to normality: "It is premature to seek to quantify the fundamental impact of the pandemic, which will depend on an array of factors including the effectiveness of recently announced government intervention, but over time there is risk of underlying CLO managers being required to divert cash flows from CLO subordinated notes to purchase additional loan collateral in response to increased credit downgrades and defaults. At the portfolio level the Investment Adviser has also taken steps to minimise mark-to-market risk, retaining a prudent reserve of cash to cover any fx hedge and warehouse financing needs. The dislocation in the credit markets will create investment opportunities, which is expected to be a factor in the allocation of future cash flows as the Company continues to seek to maximise shareholders' total return over the long term."

[danieldruff2] 30/3/2020 12:14

My memory was that GLIF and CIFU suspended dividends for a couple of years, but it all bounced back to where it was. What a disaster GLIF turned out to be after it sold its portfolio on to FAIR

[cerrito] 30/3/2020 12:12

danieldruff230 Yes on my things to do list, although quite low down, is to remind myself of the GLIF days and if they suspended dividends.

[danieldruff2] 30/3/2020 12:06

Remember what happened when their portfolio was owned by GLIF in 2008, went down to 1.5p, recovered to 45p, a 30x return. Keeping an eye out in case it gets close to that again...

[cerrito] 30/3/2020 11:09

Not entirely unexpected news for me this morning about the dividend and their explanation makes sense. That said I would have strongly preferred if they had given an indication of their cash position. My sixth sense tells me they have gone into this fully invested and let's hope my radar is wrong. I take some comfort from the fact that in the top 10 industry classifications, no oil and gas, consumer transportation, or retail , although hotel,gaming and leisure is no 5 at 5%. I have goofed here . I do not have the courage to buy more and will sit tight.