Gcp Asset Backed Income Share Discussion Threads

[papy02] 29/6/2024 17:59

Some smart investors here have exited GABI higher up. I didn’t follow suit as I believe Gravis knows the portfolio best and have signed up to a Performance Fee that, if achieved, gives respectable shareholder returns from here.

I have finally done a “proper” spreadsheet to test this. My guess (central estimate) from the current share (bid) price is approx 17% shareholder IRR through end 2028, assuming Gravis achieve mid-range of their Performance Fee. Or approx 16% if they just reach the minimum threshold for Performance Fees.

The key to over-achieving on that, is if Gravis can materially pull forward the realisation of loans, vs what I assumed. The major risk, obviously, is if one or more large loans go bad, in excess of the haircuts I've assumed.

Gravis also have an 8.8% shareholding, which should better align them with shareholders overall.

So for me, any drift in GABI shareprice, during the potentially long fallow periods for redemptions/distributions, would be an opportunity to top up, rather than a reason to exit now.

But E&OE, DYOR, NAI, YMMV, etc.

Perspective

The threshold for Gravis to earn Performance Fees on the wind-down is 12% IRR on an “adjusted portfolio value” of £321m as at 31 Dec 2023. The 12% is measured on cash receipts after transaction costs so OPEX etc not deducted.

Tailwinds for them, in achieving this 12% IRR, include:

- Portfolio weighted average yield of 8.7% p.a. (per 2023 AR)

- The £321m starting-value is an 11% discount off the portfolio NAV at YE 2023, and much more off portfolio face value

- That portfolio NAV has been calculated using a weighted average discount rate of 10.5% p.a. (per 2023 AR, though I do find this hard to credit)

- Lower market interest rates from here may help (e.g. in getting loans re-financed elsewhere, or getting an acceptable price for a portfolio sale of, say, 2028+ loans)

Workings

I profiled cashflows (loan redemptions + interest) that result in Gravis achieving 12% IRR on the “adjusted portfolio value” of £321m. I started from the loan-redemptions reported so far in 2024, then used the Gravis loans spreadsheet to model a reasonable time-profile for future redemptions of the remaining loans. I assumed all 2028+ loans are wrapped up in 2028, (pulling realisation of all 2028+ loans into 2028). I massaged the resulting cashflow-profile (via haircuts off face value) to arrive at a Gravis 12% IRR from the notional investment of £321m at Y/E 2023. It needed 5% discount in 2025, 10% in 2026, 15% in 2027, and 26% in 2028 (with 2028+ all pulled into 2028) to massage the Gravis IRR down to 12%.

Lots of assumptions and calculation short cuts in there, but all to try and get a reasonable time-profile for the redemptions+yield cashflow that Gravis is being measured on. The resulting cash profile is constrained by the need to model a 12% IRR. So any changes in the time-profile or estimated loan face value, rental yield etc, will principally affect the levels of discount off face that I had use to get to the 12%, more than changing the resulting cashflows that give a 12% IRR.

The purpose of all the above was to see what shareholder IRR (from here) resulted from those gross cashflows, after deducting estimated operating costs including Gravis fees.

When I plug in existing-shareholders’ starting investment (266m shares x 68.4p Bid = £182m market cap at the Bid Price as of June 28th) and use the same estimated future cashflows from here, as above (minus estimated costs/expenses), I get a shareholder IRR of 15.9% from here. This relationship (shareholder IRR vs Gravis 12% IRR) should be somewhat robust to the exact cashflow-timing and haircuts assumed (given these “have to fit into” the Gravis 12% IRR target, for my purposes).

Gravis need to reach the 12% IRR at Portfolio level to earn any Performance fees. Their Performance fee is capped at £14.7m, which would require £73.7m “excess return over the 12% IRR” (before deducting the Performance Fee). But this is slippery to model. It may be achieved more by pulling redemptions forward, than by collecting larger amounts (i.e. reducing discounts/haircuts). My understanding is that it is calculated on a loan by loan basis, once 12% IRR is achieved on the overall portfolio. So even with just 12% IRR at portfolio level, significant Performance Fees could be earned, with outperforming loans paying out for Gravis, but balanced for shareholders by others that underperform.

My guess is that if Gravis earn half the max Performance fee, shareholder IRR increases by 1 to 2% over the 12% Gravis IRR scenario, so approx 17% shareholder IRR is my central case.

It’s a very rough calculation, but encouraging fwiw.

Would be interested if anyone else has done a similar calculation, or has comments on methodology.

Assumptions:

For redemptions I used the 2024 announced redemptions to date, then timings based on the Gravis loans spreadsheet going forward, applied to my estimate of current face value outstanding.

I assumed increasing haircuts off face value from 2025 on, and that all 2028+ loans are wrapped up in 2028 for a 26% haircut in 2028 overall.

I grouped redemptions into quarterly buckets, except 2028+ all in a single (very large: 51% of total) bucket.

I didn't explicitly model bad-loan (and interest) write-offs, so those were only covered by the overall haircuts off face-value I assumed.

For Expenses/costs: I used £1.5m pa fixed, + Gravis management fee of 0.7% of portfolio face value (not 0.75% of NAV, as per Circular, as I didn’t have qtr by qtr NAV numbers). I didn’t add liquidation costs, hoping this is offset by using face value not NAV for Gravis periodic fees. Could be improved! I deducted £4.4m of Performance fees (30% of the max, all in 2028) even with Gravis IRR of only the 12% portfolio-level threshold, for the reasons given above, and deducted £7.4m Performance Fee for my mid-range “central estimate” scenario.

Please treat this post as if written by an anonymous BB poster you’ve never met and whose judgement, and capacity for spreadsheet errors, is unknown ! :-)

[mabelf1] 26/6/2024 09:50

If your broker won’t let you trade, there is a new KID on the Gravis website for the new ISIN number.

hxxps://cdn.graviscapital.com/graviscapital/files/GCP-Asset-Backed-Ord-KID-31-Dec-2023-Final-002.pdf

[naeclue] 25/6/2024 15:26

Arrived at AJ Bell

[stemis] 25/6/2024 09:01

In at ii but not AJ Bell

[cwa1] 25/6/2024 07:56

Cash in first thing at ii, very nice too :-)

[papy02] 24/6/2024 19:52

Payment is in my HL ISA. Nothing in II yet.

[adv11] 24/6/2024 19:09

Nothing in my old I-Web (Halifax) ISA. Can take over a week for them to credit cash in these cases. Looks like I could buy, although KIID is dated May 2023. They are usually tough on this.

[jam62] 24/6/2024 18:04

I was told this afternoon that all brokers who are within the Crest system of settlement received all proceeds earlier today.

[stemis] 24/6/2024 17:47

Or AJ Bell

[cwa1] 24/6/2024 17:03

Nothing in ii yet

[tag57] 24/6/2024 14:44

Nothing with HL and unable to buy any due to HL not having an updated KIID.

[fordtin] 24/6/2024 14:04

Just checked and the money has been paid into IG account since I last looked. I wasn't expecting that!

[fordtin] 24/6/2024 13:59

The announcement did include “expected̶1;.

It might be best to expect the unexpected delay.

[smidge21] 24/6/2024 10:29

."by......24th".

[cwa1] 24/6/2024 10:26

I've got today down as the expected date for payment of the redemption cash on my calendar. To save me wading through a mountain of "stuff" can anyone confirm or deny this off the top of their heads?

Cheers

[papy02] 22/6/2024 22:54

This post compared Gravis IRR with Shareholder IRR.

While cleaning up the spreadsheet for clarity I have mucked it up, and am no longer sure my previous conclusions were correct.

I will re-post with whatever my revised conclusion are, once I’m more confident there are no spreadsheet errors.

Apologies to anyone who read this post already.

[2wild] 14/6/2024 16:34

I paid 70.285p via II, this afternoon

[ammons] 13/6/2024 21:42

Hpcg, on line?

[hpcg] 13/6/2024 15:18

I bought more with Barclays today. No problem with my account.

[chucko1] 13/6/2024 15:00

Jam62, one might be thankful that that is the extent of the problem. My friend who owned GABI in Barclays is STILL being shown as short the stock, and also short cash!

Imagine if he is short the stock and they also had the KID issue and could not purchase back! (not that he should need to). It gets worse - Barclays outsource their corporate actions and tax-type stuff re. dividends etc. so you cannot even shout at anyone.

[jam62] 13/6/2024 14:05

Hargreaves has now allocated new GABI to portfolios but are not allowing holders or prospective holders to buy any stock.

It seems that they are insisting on receiving a revised KID from the company before allowing any purchases. You really couldn’t make it up!!!

[2wild] 13/6/2024 11:35

Exactly, SLFR had to severely discount certain loans due to risk of default. And not some arbitrary across-the-board Discount rate.

[chucko1] 13/6/2024 10:26

IFRS9 generally forces their hand. SLFR/X suddenly had to revalue their portfolio on account of having certain credits which could not reasonably be described as "likely to repay". Then all hell broke loose as all items had to be discounted. And from that point, presented a fabulous opportunity, but at a drastically reduced NAV.

And I would contend that GABI/GPC are streets ahead in terms of their credit selections (not a big ask), so discount rates of 9% and above are way beyond their multi-year loss experience. That does not mean that they could not suddenly have a problem with a certain class of credit, but I am happy to significantly bet against that at the current valuation.