Wind-ups often drag on for years, even after assets and valuations have become Very low. Despite a large % share price gain last week, SLFRX has a market capitalization of just £5.6 million. SLFR £6.8M. SSIF only announced a de-listing date after assets fell below £7 million.. At which point interactive investor threatened to send me a share certificate, as I could no longer hold in an ISA. Later they simply transferred SSIF to my associated trading account. Further cash realisations are paid to my trading account as normal with notification via email and Corporate activity box as before.
Personally I'd rather they stay listed for as long as possible. As there can be greater percentage trading opportunities, as discounts rise to reflect greater risk and uncertainty, both real and perceived. |
At some stage, it becomes inevitable that such a transfer, or equivalent, is logical (and acceptable). There will be a level of costs of running the fund which has a lower bound whose magnitude approaches any expected benefits from the remaining assets. They seem to have already modelled this. |
Presumably Gravis could use the CGT fund to "move" some of these longer dated loans over to there by offering CGT a decent discount? Perhaps an easier/cleaner way rather than a complete merge. |
 What I find odd is the use of "base case", which is in fact the most bullish of the five scenarios. That said, Gravis do mention their incentive to additionally pull forward the 2027 payments, which would represent a bull case, and which I think they actually will very much have to do.
I say this because there doesn't seem much point in running a quoted IT from the end of 2025 with a NAV of around £31m [and market cap around £25m?] and paying all the fixed fees and costs on such a small fund.
I also think it's worth acknowledging the writedowns that they model [final column page 9], notably on Property Co 2 where they model a ~20% discount to pull forward the loan i.e. the base case is not blindly bullish in my view.
Lastly while thinking about the base case, they have already delivered with the redemption two days ago of £10.1m i.e. they are walking the talk :-)
I've played around with the numbers a bit and reproduced / modelled the scenarios in Excel.
- added an "upside" scenario, where the fund winds up at end of 2025 with the 2027 payments pulled forward at 20% discount. (There could even be further upside given the recent track record of redeeming loans above NAV, but I have left that out for now)
- assigned a probability weight to each scenario - 50% for "base case" and 10% for the other scenarios [including my "upside"]
- on 76p share px I get weighted average IRR of 24% [table below]
Base case. 27.9%
Larger rump. 19.3%
Acceleration discount. 24.7%
Higher rump discount. 17.6%
Downside. 12.3%
Upside. 29.5% |
Good illustration There's actually a very rarely used function in excel that allows you to set your reinvestment rate - MIRR |
From page 10 of managed realisation plan:-
CONCLUSIONS
The base case realisation plan is forecast to return cash to shareholders with a present value of c. 86 pps.
• The Company has made significant progress with returning capital to shareholders, with a June compulsory redemption of 37.5% of the shares.
• The base case plan forecasts material returns of capital in the remainder of 2024, totalling 51.4 pps. By the end of 2025, a total of c. 83 pps is forecast to be returned.
• Ongoing target of 6.325 pps annual dividend.
• Scenario analysis shows attractive IRRs against current share price even in downside scenarios.
• Gravis is incentivised to bring asset level realisations forward to accelerate the return of capital. |
As it currently stands, a 13.5% loss rate is something to heavily bet against. Even 4.5% (on the current portfolio) requires some pretty bad luck.
But as the capital gets returned, these numbers change significantly. Their high IRRs were calculated as of April 1st, prior to the first RoC, so that must be borne in mind. The Watchlist loan repayment was quite significant, and paints a picture of a conservative management - hence of a likely decent asset quality that supports a low loss rate.
Very few of these asset backed loan ITs are likely to be around in a few years, and I would cash in. Sometimes, they are problematic along the way, but always seem to provide a decent entry point allowing high returns. And GABI seem to have a better management than most, notwithstanding the connected loan issues. |
Good post. Loss rates tend to increase at the end of the wind up process. Problem loans are a bigger proportion of whats left.
I think that's why 4.5% is a lot more reasonable than 0.5%. Also, when very few long dated loans remain the fixed overheads of running GABI outweigh returns so it's better to sell what's left at a discount and return the proceeds. I have no idea if 13% or 4.5% is realistic. I guess one very bad loan would swing it one way or another but personally fwiw I think 0.5% is too low. |
Analysis of the portfolio with resulting IRRs have been discussed on this BB well in advance of their own publication. There is literally nothing new in terms of what has been published other than their view of certain scenarios. But they are just scenarios, with no probabilities attached, and hence no house view (which might indeed be new information).
That said, the 5th scenario which cites a specific loan suggests something quite specific to keep an eye on, although they have previously cited specific loans as being on either a Watchlist or of greater concern.
They have continuously published the portfolio, and we have been able to look at scenarios that result in pretty well the same IRRs. Actually, theirs are a little higher, but not materially so. Recall that I (and one or two others) have written in the past that the current share price (as was then - 71p) implied a mighty 13.5% default rate and the NAV (as was around 89.5p) implied a 4.5% default rate. Historically, they have experienced a 0.5% default rate.
Why this is not new information is that they could still simply be wrong - they could suffer high default rates on a particular loan grouping - and would look a little daft for not having considered this variation. I would say, on reading their analysis, that they have been a little aggressive in having such a serene downside. But it is one which is not inconsistent with their low loss rate over a long timeframe.
Amongst all the IT wind downs, I have seen this as the best of the bunch. And even after the returns of the past few weeks, it's still up there, although with a more uncertain return schedule. |
This update was imparted to a select few and was very price-sensitive. Within a few hours 3.4 million shares traded traded and the share price rose significantly. Did people deal on the update?
The update/presentation document should have been firstly issued as an RNS, thus available to all shareholders simultaneously…;…..net effect is…level playing field, i.e. nobody is made an insider.
The non-insiders were significantly disadvantaged, given that availability to all happened P.M. on the following day. |
Astonishing they update a select few investors and no doubt more colour was given on the webinar than is written in the slides but private investors are denied the chance to participate. I’d been led to believe Gravis was a decent outfit, but it stinks to be honest. |
Assuming they use the same method of returning cash, dividends will reduce as cash is returned, on an absolute basis. Nothing to stop you reinvesting your cash returned to keep you divi amount though. |
for as long as they have the funds |
just discovered this one. The payout plan looks compelling but are they going to keep paying quarterly dividends? |
Surely this strategic review makes the remaining GABI equity an even more attractive takeover target. Indeed, one could argue that given the new implied proximity of cash receipts, a 7% discount to the current stated asset value, would prove to be a very juicy morsel indeed to any successful bidder. |
It's not as bad as I initially feared, only bought in despite my misgivings because it was simply too cheap; giving considerable room for errorGABI suffered from taking large losses on their co-living loans and from the stench of making loans to borrowers that the investment manager had equity interests in Better corporate governance and communications and they might have survived As it stands I think RECI is now the only listed commerical real estate credit vehicle; which is a shame - there was little wrong with Starwood's vehicle and it's going too |
The pulling forward is what this is all about. This provides both the shorter average life, and the sale of asset above NAV, as the 12% discounting would have been misapplied (effectively). |
The base case shows a very aggressive pulling forward of loan repayments into this year, almost £100m more than the loans maturing. In 2025 they bring forward another £60m odd versus the schedule, only leaving a relatively small amount for 2026 and 2027.
If they are correct, the IRR is indeed a stonking 36%. Cashflows I see them using on slide 4 are:
05-Jul-24 (191,531,081) [current market cap]
30-Sep-24. 82,153,000
30-Dec-24. 54,661,000
31-Mar-25. 1,837,000
30-Jun-25. 1,857,000
30-Sep-25. 19,610,000
31-Dec-25. 60,869,000
31-Mar-26. 450,000
30-Jun-26. 455,000
30-Sep-26. 460,000
31-Dec-26. 460,000
31-Mar-27. 450,000
30-Jun-27. 455,000
30-Sep-27. 27,557,000
31-Dec-27. 4,514,000
Going to do some digging in the coming days, but this looks pretty compelling. |
The shareholder cash returns are substantially higher than the NAV, since they are using a scenario analysis to determine cash returns from their investments and timings - 5 separate scenarios, in fact - rather than a blind 6.5% default rate (coming from 12% discount rate minus 5.5% risk free rate)
The seemingly high IRR is from a modelling of the precise timings of the returns, and the base case high IRR of 39% presumes a rather shorter average life than the others. Additionally, the final scenario (downside) is the lowest owing to an implied higher degree of credit loss on top of a longer average life.
IRRs in themselves are a little meaningless as they depends on the average life, which has not been explicitly stated. Nevertheless, the NPV assumes a 12% discount rate, it seems, and applying that over, say, a 2 year average life (probably a bit shorter) and suffering de minimus defaults, will jack up the IRR considerably.
To be quite honest, something like this has been clear from even when the share price was around 60p and it was likely they would enter run-off. Why it needs printing in black and white to get investors excited is a mystery. Moreover, why they needed to enter run-off is as much of a mystery owing to the (now apparent) excellent stewardship of the IT. Same applies to a few others as well. It is mad. |
So this was what the share price jump was about
Good document. A lot to digest.
Irritating to be told a day later than the favoured few!
Struggling to reconcile their shareholder returns NPV and the shareholder IRR they quote. |
If GCP paid 85p (in stock) for the rump of GABI and using between 10% and 15% haircuts on the rest of the loans (0% on the 2024 ones), still gives a 8.8% XIRR to GCP on the remaining book that they would acquire. There's plenty of meat on the bone to interest GCP shareholders while still being able to give GABI holders a decent uplift from here and for Gravis to make out like bandits. |
I have more GCP than GABI; always have had. I would be happy for a discounted transfer to there for shares. Those that really wanted cash in hand have a had a chunk, and a reasonably liquid market to sell down more. |
The 78p bid was before the big cash return at NAV of around 1/3rd of the market cap. Bar around £42m there isn't much in the way of loan repayments until 2027.
That's not to say there isn't significant value here. I still think best returns will come from Gravis merging the rump into GCP. The last merge was rejected by GABI but that seems less likely now. I think it can be made attractive to GCP holders and for Gravis to still get their nice juicy bonus. |
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