Invista EUR Prf Discussion Threads

[joan of arc] 02/5/2014 09:03

If at the pref's maturity date nothing has been repaid will they have to keep accruing more interest at the same rate until the capital is repaid, would it be prorated to the capital outstanding as it is repaid or would there be no further interest to pay?

[scburbs] 02/5/2014 08:51

That is the time to the scheduled maturity date. The chances are that the terms of the loan will mean it will be very difficult to generate enough cash to pay off the prefs by December 2016.

Disposals of €85m will allow them to service the coupon. In order to be able to repay the prefs (unless values start increasing) would probably take another €100-150m of disposals.

The loan will probably have release pricing of say 120% (i.e. if they sell additional assets they have to repay more than the equivalent LTV of debt on that asset). This means that €100m of disposals assuming LTV of c.60% at that stage would repay say €72m of debt. If they sold the assets on average 6 months before expiry of the prefs then the exit penalty would be c.3%, leaving them around €26m of cash, insufficient to pay the prefs and accrued unpaid coupon.

The exit penalty on the new loan runs until November 2016 and is quite hefty (if they made further disposals at the beginning of 2015 it would be nearly 10%!). This means it is inefficient for the company to make more than €85m of disposals before 2016 (gets less inefficient as you get closer to the pref redemption date, but that is a lot of property to sell in 2016). A repayment 2017-2019 would be a more prudent assumption (unless values materially rise).

"For the first thirty months of the New Loan, any early repayments beyond the first €85 million (or any repayment from the proceeds of properties that are not designated as part of the disposal programme) will trigger an early redemption premium equivalent to the full interest rate on the amount repaid for the balance of that period."

[kenny] 02/5/2014 08:48

flyfisher - the problems you highlight are a concern for the ordinaries not the preference which rank above the ordinaries.

[flyfisher] 02/5/2014 08:46

The company is trying to sell 96.2 value of property , from which it is to pay down 85m of debt. With some 15% of the portfolio empty and the new lender being unlikely to lend on empty property , it is probable that a decent proportion of the potential sales will be of empty property.
A few months ago empty property at amiens was sold for 50% discount and more recently the modelice property was sold at book.
Whilst the refinancing is a positive , I would expect some of the sales to be at a distressed price and that the 85m may not be achieved . Also the company recently commented that they will incur further capex later this year.

Whilst the prefs are looking much safer , it still looks like a fund raise and dilution for the ords to me .

[envirovision] 02/5/2014 08:29

Corrections yes I had in my diary 2017, 2.5 years left to redemption even better for a faster reduced 53p return around 72% upside from here

[skyship] 02/5/2014 08:21

Yes, I believe 30/12/2016 is the originally defined Redemption Date.

The basic Yield to Maturity stats suggest that the prefs should rise further; the accruing of the dividends is an inconsequential negative.

Very interesting to read AlanJI's breakeven and wipeout figures.

[gary1966] 01/5/2014 22:13

Enviro,

Is the redemption date not the 30/12/2016. I thought the prospectus said that the prefs would run for seven years from issue.

Gary

[envirovision] 01/5/2014 19:35

AlanJI I am unsure how you arrived at that but taken at face value, a 20% NAV fall over a 3.5 year period seems unlikely, if anything an increase in nav more probable.

Any way my figures for the NAV fairly simple: Would give one a guaranteed return of 82% on an initial 3.5 year view assuming pref buy price 74p.

EG redemption Dec 2017 100p, +interest 2014 9p, +interest 2015 9p +interest 2016 9p +interest 2017 9p.

I'm not sure if the prefs are subject to compound interest would need to check terms.

One could treat this as a high value ZDP with an early payment kicker.

One can see how favourrable this looks, especially when you consider Inland recently launched a ZDP on a 5 year term at 118 redeemed 2019 for 159

[alanji] 01/5/2014 16:56

Just found this thread as it was mentioned on the ord thread. I hold both.
Using the current bid prices of 3.35 and 72p these are the approximate figures (using Dec 13 values) with the falls in gross property values required:
break even for ords - 15%
wipe out for ords - 18.5%
break even for prefs - 22%
wipe out for prefs - 29.5%

A 10% fall would give a potential 150% profit on the ords and just under 50% on the prefs, plus the 12.5% yield (accumulated until loan is reduced below 135m)

[stupidboypike] 01/5/2014 16:45

loobrush, I also bought the ordinaries today. I think a NAV of 19 and a share price of 3.7 with no financing worries just does not add up. Hope we are both right,

Best regards SBP

[loobrush] 01/5/2014 16:41

Decided to sell my prefs today for a fair profit and have bought some more ordinary as they have much more chance of rising a lot more than the prefs especially as they seem to have about half the necessary disposals under offer already.

[skinny] 01/5/2014 16:28

Well certainly some volume today.

[langbarb] 01/5/2014 16:04

hi all, if the Step Down event does not occur before the maturity of the prefs, what would then happen? Would capital be repaid in 2016 and the coupon remain suspended till the Step Down event occurs?

[envirovision] 01/5/2014 12:14

I thought long and hard about this despite all the pain shareholders have suffered I agree with you Kenny.

Yes the prefs seem safe and will not only end up safely redeemed but every penny of interest paid (including the 4 pence already in the price owed today).

Anyone who can afford to buy and hold will most certainly be rewarded, as such buying now (if you can wait) is like buying free money.

I am a buyer.

[kenny] 01/5/2014 11:31

Today's news represents material progress. The company needs to sell €85m of property before we preference share holders are paid any arrears of coupon and the coupon payments recommence on a regular basis. In this connection, note they have €50m of sales in hand.

Also very reassuring that even at an interest rate of Euribor plus 770bp the company is still left with an excess of income over expenses albeit I don't imagine it is much of a surplus.

Finally, the third bit of good news is that the pressure for a forced sale of property is removed. After the sales in progress, the company has the luxury of securing tenants for the vacant property as well as awaiting a fuller recovery in property prices - particularly French property - before selling. I note the company can extend the loan from 3 years up to 5 years. All the while, the preference shares are accruing interest at 9% per annum. At that sort of rate of return, including potential capital gain from here to par, I am willing to wait - even if it takes between 3 to 5 years albeit one always hopes it will all be resolved within 3 years.

[envirovision] 01/5/2014 11:05

Looking at the runs it's not clear what has happened to the newly announced property sales. I guess since they fall silent on this we must assume the worst.

That is to say the income is being used in addition to the loan to have met rbs terms and working cap. Also since no mention of achieved probably means sold at a Nast discount to nav.

[envirovision] 01/5/2014 10:03

Basically no dividend until LTV falls below 70% in addition to having to repay about 90 million. I guess if these terms are not met they could even suspend redemption of the prefs in however many years time.

Whilst on paper it looks great, it's the track record of the board that concerns me.

They seem to have really really dragged their feet here, it's almost lucky that they never wiped shareholders out.

Perhaps a pause for thought is the right approach

[loobrush] 01/5/2014 10:03

Well I said that this would be a good bet -see my thread on IERE (5 TIMES YOUR MONEY), I would get into the ordinaries as well they are still amazingly cheap.

[gary1966] 01/5/2014 09:44

Dividends are accruing until pre-agreed disposals take place and debt reduced to €135m. Dividends will be paid from this point.

This finance package takes us beyond the redemption date of the prefs which is the end of 2016.

Out today but need to look into redemption terms a little closer. I see these as being a bit like LLPD now after their divi was suspended.

[blackpoolsteve] 01/5/2014 08:59

Checking RNS news,it looks like IERE ordinary shares are presently better value than prefs,for capital growth,as dividends suspended for 30 months ?

[skinny] 01/5/2014 08:24

I only have a small holding here @44.30p, and quite pleased to not have to worry for a while now.

[valhamos] 01/5/2014 08:21

I always thought this sort of deal was there, and probably a better one if IERE could have shown more disposal activity in the last few months. Currently over €50m under offer is good news. My average is 66p and I'm expecting a decent return on that.

[cwa1] 01/5/2014 08:17

Nice work guys, I always had faith :-)

[stupidboypike] 01/5/2014 08:14

Well done Kenny and all those who hung in. I bottled it a couple of months ago but have just bought a few shares and a few prefs. I think they are still both mispriced this morning. Best regards SBP

[scburbs] 01/5/2014 07:51

Well done Internos, a great deal! The flexibility of non-traditional debt fund lenders are great for groups like IERE and also great for participants in the debt fund who will get a chunky 770bp over EURIBOR on a loan that is pretty safe (albeit the interest cover is not good!). Now they need to actually deliver on disposals where they have always looked a bit slow.