Gcp Infrastructure Inves... Share Discussion Threads

[badtime] 02/10/2023 15:36

In hindsight you could have waited until today :)

[chucko1] 29/9/2023 10:51

Donald, I agree with you in that the RCF is not a "problem". On Gilts, they are yielding 5.75% below what this risky income stream offers. Around 1% too much, and that assumption implies a price nearer to 76 than 68.5.

[donald pond] 29/9/2023 10:31

Well, the last they said was when the debt discussions ended and at that point the RCF was a little over £100m. Let's ignore the NAV and the market cap and focus on the assets.

They are generally good assets: the default rate has historically been low and they are part backed by revenue flows guaranteed by the Uk government. The current amount owed or principle outstanding is £1bn, earning an average of 7.9%, with an average life of 10 years. They aren't doing more lending for obvious reasons.

So I can't see either servicing or repaying the debt as a major issue. The problem is simply that when you can get enough from gilts, income seekers don't look any further.

[spectoacc] 29/9/2023 08:33

Indeed, but what about the RCF, which the GABI deal was supposed to resolve?

[donald pond] 29/9/2023 08:21

GCP is IMO lower risk debt with higher duration. It's the duration that's the problem but with the yield at over 10%, you are getting rewarded.

[wshak] 27/9/2023 15:56

GABI has significantly outperformed GCP since the merger was announced, and again when it was called off.

This is probably as a result of GABI likely going into wind-down.

Anyone have a view on the respective quality of their NAVs?

[badtime] 27/9/2023 15:03

70 seemed to offer done support ..drifted past that yesterday and lower today ..next floor?

[hindsight] 22/9/2023 11:45

They are doing some buybacks 675k yesterday
Added few myself

[williamcooper104] 18/9/2023 12:33

Yep; as said I think it would be better to carry on with new management but absent that then it's a wind down Cary on with current doesn't work Though they did make me giggle when they tried to turn their co-living bad loan into a separate equity reit - lose money for shareholders and increase AUM for management

[wshak] 18/9/2023 12:00

WC & hpcg,

I own both GABI and RECI in size, having only recently purchased GABI at 57.5p.

Both of you are correct in how I view GABI.

I was prepared to take GCP shares as a merger but am happy to see it called off, as I can see a much better return by winding it down and returning capital to shareholders.

I have a positive view of long term interest rates compared to where they are, so basically see GABI as a pref with upside.

I can't say I am enthused by the assets or the skill of management. I'll be voting for it to wind down when given the opportunity.

[williamcooper104] 18/9/2023 11:41

Both GABI and GCP should continue but under new management There's been plenty of failing US BDCs which have thrived with a change of manager (eg FSK and OSCL - I hold the later) It's really bad for UK markets to see yet more assets/investment options go A change of manager of course doesn't preclude selling/winding down some assets to fund buy backs/return of capital

[williamcooper104] 18/9/2023 11:37

Have owned in greater or lesser amounts HICL since their IPO and have occasionally held GCP - the lower yielding HICL is way ahead on total return GCP is IMO an equity/pref debt fund masquerading as a debt fund Hence they started out with PFI sub debt and they are now so sensitive to power prices which isn't what a debt position should really be GABI are a good compare and contrast with RECI, in favour of RECI

[hpcg] 18/9/2023 10:45

A good chunk of the discount is completely correct. At current interest rates the principal investment is worth less than the headline number because of discounting. There is no mechanism under the control of management to unwind it, at least not here with the long duration assets. The only way is to sell a tranche of debt at a lower discount. That falls down because wy would anyone do that when they can buy at the current discount in the market? The only other way is to use buybacks, which they are doing, not fool proof as all the buybacks at prices above today's share price are testament.

[mwj1959] 18/9/2023 10:32

One thing that we can guarantee is that the major holders won't stand for the discount remaining at current levels, so now that Plans A and B have come to nothing the board is going to have to come up with a credible Plan C relatively soon and not one that necessarily is beneficial to Gravis.

[hpcg] 18/9/2023 10:20

GABI up on the introduction of a continuation vote I would say. A wind up is attractive for a short duration book. The discounts in neither make sense in absolute terms, in my opinion it is more the lack of obvious buyers. The distribution isn't sufficient for FI type investors, by which I mean funds, who are happy with conventional assets. Some funds are probably still sellers. Equity funds have never been investors. So it leaves hedge funds and private investors seeking income. The latter, especially those with long horizons, are happy with interest rate risk, credit risk and like the premium over short or long term rates depending on the fund. There is the potential for discount reduction, but that needs to see bank rates come down. A wind up offers, at least for short term debts, the prospect of the discount being closed rapidly, and suddenly value funds, conventional and hedge can see a path to excess returns.

[hugepants] 18/9/2023 10:12

It looks like GABI shareholders prefer the continuation vote route (announced for May next year) than the merger.

[mwj1959] 18/9/2023 10:07

And a major challenge for Gravis as the two trusts combined constitute around 50% of their AUM. As an LT, but modest, owner of GCP (so divs have more than compensated me for the share price decline) I'm tempted to buy more at these levels on the belief that the discount is unsustainable at current levels, downside risk to the NAV is relatively limited and that the dividend is secure. But clearly there are risks here on all fronts.

[chucko1] 18/9/2023 09:03

Spread between the two (GCP and GABI) is now 7p tighter than it was pre-announcement. So, I have sold ALL my GABI purely on that basis! The only thing that has changed is that some diehards want to keep GABI's show on the road, and I presume because they hold them from rather higher a price.

These failed combinations tend to raise uncomfortable questions for Boards further along the line.

[spectoacc] 18/9/2023 08:26

It's a fair point - GABI up 5% tho.

[spangle93] 18/9/2023 07:57

"Always looked better for GCP than GABI"

Well, I don't recall the share price rising tremendously on the announcement last month?

Let's hope that accordingly, it's not punished too much for not fulfilling it

[spectoacc] 18/9/2023 07:21

Always looked better for GCP than GABI, but have to start questioning the strategy now. This was presented as more or less set (unlike the RMII one):


"Cessation of combination discussions with GCP Asset Backed Income Fund Limited

GCP Infrastructure Investments Limited ("GCP Infra" or the "Company") notes the announcement issued today by GCP Asset Backed Income Fund Limited ("GABI") confirming that GABI is no longer in discussions regarding a proposed combination of GCP Infra with GABI (the "Scheme") and that the heads of terms ("HoTs") between GABI and GCP Infra have been terminated."

[donald pond] 06/9/2023 09:52

From liberum today. I think the conclusion is probably correct. When there is no origination possible fees need to be cut.GCP Infrastructure Investments called off the proposed merger with RM Infrastructure Income as the two parties were unable to agree on a structure and terms for the merger acceptable to both sides. However, the proposed merger between GCP Infrastructure Investments and GCP Asset Backed Income that was announced on 11 August remains on track. Heads of terms for that merger have been agreed and a shareholder feedback exercise is being conducted. A circular to shareholders providing further details of the proposed merger between GCP and GABI is expected to be published in due course.RMII has proposed a managed wind-down of the fund in response to the failed merger with GCP, citing "differing views" by shareholders on the merits of a potential combination against a managed wind-down. Given the failed merger talks, the small scale of the fund, its persistent discount to NAV and the limited liquidity of the shares, the board assesses that the best option forward is a managed wind-down of the fund. This will result in an orderly realisation of the company's underlying assets, with capital returned to shareholders as the loans are repaid and its equity and warrant assets are realised. The company will retain the ability to extend loan maturities or provide further funding to existing borrowers where the board considers that doing so will maximise the return to shareholders.The company listing will be maintained during the realisation period and the board intends to maintain its current target level of dividend until the commencement of the orderly realisation. The board intends to publish a shareholder circular by the end of October 2023 to convene a general meeting to approve the managed wind-down. Prior to the publication of this circular, the investment manager will explore the possibility of offering an opportunity for shareholders to roll over their investments into an alternative fund structure to be managed by the investment manager.Liberum viewWe are not surprised by this morning's announcement that the proposed GCP / RMII merger will not go ahead. With RMII's shares trading on a narrower discount and the short-term nature of the loan book (less than 2 years), we believe an orderly wind down will result in a better IRR for shareholders. The uncertainty around the GCP and GABI merger also made it more challenging for RMII shareholders to get on board with the proposals from GCP. Performance of the underlying portfolio has generally been robust, so we would expect capital returns close to NAV should be achievable, with an attractive 9.4% dividend yield in the meantime.Focus now shifts to the proposed GCP / GABI merger, which we believe remains in the balance, with shareholders split on the initial terms proposed by the board. Whilst we welcome both boards taking an active approach to addressing the discounts on which both funds trade, we think improved terms are required to achieve more widespread support from investors. Our view is that more can be done on the ongoing fee structure of the enlarged company and there should also be an opportunity for a larger return of capital, preferably at NAV (less costs). M&A is clearly going to be a big and important theme in the investment company sector over the next 12-18 months, but any deals need to go further than just merging to simply create a larger vehicle. Investors will want to see improved terms and structures, which will be far more effective at narrowing discounts than marginally improved liquidity

[stemis] 06/9/2023 09:38

Yeah I'm getting a bit wary of liquidations which seem to promise an easy gain from the discount, but end up dragging on with a reduced dividend, proportionately increasing costs and a rump that turns out to be tougher to liquidate than 'expected'...

[hpcg] 06/9/2023 09:17

A wind down can get expensive and be very slow. In the worst case the longest duration in the portfolio is the least liquid and one either takes a (bigger) NAV hit to shift or the cost base eats in to returns. Better IMO is for the trust to carry on and gradually refresh its portfolio under the current conditions of the day.

[stemis] 06/9/2023 08:55

I suppose the merger is orientated towards larger institutions who want a longer term exposure to the sector rather than taking advantage of the short term discount to NAV, which should hopefully close in the future anyway. Merger gives greater liquidity and reduced costs