Sequoia Economic Infrast... Share Discussion Threads

[8w] 17/1/2022 16:23

From memory Bulb loan was written down 50%

[williamcooper104] 17/1/2022 15:08

They've got a small net write down in latest NAV - but the bulb exposure has been slightly written up (wasn't aware they had written it down - perhaps they had written off/not recognised accused interest) Jumped back in a little - do love the liquidity here

[cocopah] 14/12/2021 11:30

Well at least we know the short-term impact of the Bulb fiasco. I wonder if they will now bite the bullet on the potash and school administrations too! Wouldn’t be surprised to see the Nav dip under £1.00 before rising again in 2022.

From the latest monthly update:

As described in the portfolio update sent to investors on the 22nd November, Bulb Energy Ltd (“Bulb”) entered into the Special Administration Regime (“SAR”) on 24th November and its parent company, Simple Energy Ltd (“Simple”;) entered into normal administration on the same day. The primary objective of the SAR is to ensure continuity of energy supply to customers and, in this regard, the Investment Adviser has been working openly and constructively with all stakeholders to ensure the best interests of customers, employees and creditors.During the SAR, the fund is unable to enforce its senior security over the assets of Bulb(which more than cover the amount of the Company’s loan) and the capital provided by the Government to Bulb, to cover ongoing operating losses and achieve the Government’s wider policy objectives, will (at least in part) rank ahead of the Company’s loan. The Government and
the special administrators are yet to disclose whether they have a plan for Bulb’s exit from the SAR and therefore it is not possible to assess the level of funding the Government will have provided by the end of the SAR. Consequently, the decision to put Bulb into the SAR means that the Investment Adviser is not currently able with confidence to ascribe any value to the assets of Bulb over which it has security and accordingly it is currently assuming that these will have no value at all after repayment of the Government’s capital. The Investment Adviser notes that, had a Supplier of Last Resort process been adopted, it would have expected full repayment of its loan in a relatively timely manner. The Investment Adviser is working closely with advisers to understand if due process was followed in relation to the appointment of the Special Administrator and in ruling out a supplier of last resort arrangement among other matters. As previously noted, the Company’s loan to
Bulb is guaranteed by, and secured on, the substantial assets of Simple which is outside the scope of the SAR. The Investment Adviser is actively involved in assessing the value of these assets, but in the meantime the loan has been marked at approximately 52p in the pound to reflect a valuation of Simple’s assets alone which we and our independent reviewer believe to be conservative and realistic. The effect of this has been to reduce Net Assets Value by 1.59 pence per share. The Investment Adviser, supported by the Board, continues to be very actively focused on this loan, as well as on the two other underperforming assets, which include a loan to Australian potassium project, and a property tenanted by a private school in Washington DC. We will continue to update investors when appropriate.

[williamcooper104] 30/11/2021 22:55

Supposing that there's no read across to SEQIs underwriting standards on their other loans (they've at least one other in administration) then that's probably reasonable. At the yields SEQI is lending at a few admins is to be expected, ultimately if they make reasonable recoveries the premium rating will likely persist Quite how lending to Bulb fits in with their infra mandate I don't quite get I bailed at 109 - will give SEQI credit for being liquid as was able to bail in a second with one click - there's many smaller debt funds where that doesn't happen Was looking to generally reduce risk/margin a few weeks ago

[cocopah] 30/11/2021 21:06

So, worst case scenario, are we talking about a NAV reduction of say c2p-3p from these current travails taking the NAV to (say) c99p … and then instead of trading at a premium of 5%-9% … we shift to one of (say) 0%-3% in the short-term? Thoughts!

[williamcooper104] 25/11/2021 22:31

FT article confirming a big bust up on the seniority of the government funding; if it ranks behind SEQI then ought to be par recovery, if it ranks ahead then a zero looks likely (or if SEQI can frustrate sufficiently then they may get a negotiated discount to par recovery)

[williamcooper104] 25/11/2021 22:28

Taxpayer left exposed to gas price swings after £1.7bn Bulb rescue https://on.ft.com/3r8Yi3z

[williamcooper104] 25/11/2021 01:01

My guess is a par or zero recovery for SEQI What's nailed on certain is the epic legal fees this will all generate Being just £55m v the billions of funding required is also helpful for SEQI if SEQI can frustrate matters

[chucko1] 25/11/2021 00:30

My money is on SEQI over whatever powers a special administrator may believe they have.

More practically, the final outcome might be some haircut on this debt, but I do not think it can be a large haircut. Quite simply, SEQI own the property over which the debt is secured and the special administrator serves merely to assure 1.6mn customers that they will be ported over to whichever electricity company and if the government lose in this arrangement by honouring the 1.6mn individual contracts, tough. Nothing to do with SEQI.

Of course, the government can confiscate the property of SEQI. But that is not a wise move as secured debts are regarded as sacrosanct.

Of course, this does rather depend on SEQI's loan documents being decent. (and the property actually existing!).

[williamcooper104] 25/11/2021 00:05

Good and proper s show then

[williamcooper104] 24/11/2021 21:44

Bulb has the feel of a Carillion The topco is in the creditor potentially very unfriendly Special Admin The main holdco is where the SEQI debt sits, is in regular admin, but the Admin won't have sufficient funds to run the company (and pay their fees) so the £1.7bn could end up going in as senior rescue/DIP financing That's almost certainly a simplification of a very complex situation; but as said, SEQI really ought to clarify

[williamcooper104] 24/11/2021 21:31

https://www.standard.co.uk/news/uk/bulb-governmnet-bail-out-adminstration-failed-energy-supplier-kwasi-kwarteng-treasury-b968123.htmlGovernment putting in £1.6bn loan "The £1.69 billion loan will be set aside by Government to support the administrator's work, and ensure that lights stay on for Bulb's 1.6 million customers." That could sound a little like an expense of administration (which come out at the top of any recovery) SEQI really ought to clarify where their loan sits in relation to the government fundingSounds like a £30m plus admin fee

[cocopah] 24/11/2021 10:13

Interesting to see what the next few days reaction to the half-yearly review will be. Valuation wise not too bad, EPS not very good and the BULB issue is an ugly overhang. I still think the downturn will be temporary and I’m not a chartist but US Stock Invest claims a 90% conference level of a three-month bottom between 98p and 102p. I will be surprised if the share price hits the lower level, although I wouldn’t be surprised if it hit 1.03ish and I will definitely be back in at that level. LTHs will no doubt be unfazed with a divi that is well in excess of returns that can be gained elsewhere for similar levels of risk. I think the board will be more circumspect in their investments in the energy sector in future too. All IMHO.

[chucko1] 22/11/2021 15:04

It’s not easy to see a haircut on senior secured exceeding 30% in any circumstance. Even a 2p drop on the news was excessive especially considering this was hardly a surprise.

[speedsgh] 22/11/2021 14:22

Portfolio Update -

On 22nd November 2021, SEQI learnt via a press article that Bulb Energy Ltd ("Bulb") is supportive of entering into the Special Administration Regime ("SAR") established by the Energy Act 2011. If this were to occur, the Investment Adviser notes that the parent company of Bulb, Simple Energy Limited ("Simple"), would enter into normal administration.

SEQI would like to note that its Investment Adviser remains actively engaged with all the relevant Bulb stakeholders. As previously noted, SEQI's loan to Bulb is GBP55.0 million (approximately 2.9% of NAV as at 31 October 2021) and is guaranteed by Simple.

The primary objective of SAR is for the administrator to ensure continuity of energy supply to consumers. In this regard, the Investment Adviser has been working openly and constructively with all stakeholders including Ofgem to ensure the best interests of customers and employees.

The loan is senior ranking debt, secured on all the assets of Bulb and Simple. As of today, the value of Bulb's and Simple's assets are in excess of the amount of the loan. However, one consequence of Special Administration is that, whilst it is continuing, secured lenders to Bulb are unable to enforce their security. The substantial assets of Simple are outside the Special Administration process and are also collateral for the Company's loan.

The Investment Adviser supported by the Company's Board of Directors will continue to work with stakeholders to ensure a fair outcome for all parties including our shareholders that include retail investors, funds managing individuals' savings and pensions and other investors.

Further information will be provided in due course.

[williamcooper104] 22/11/2021 12:32

Looks like government are putting in rescue funding; which will be senior to SEQI - "Under the SAR, the administrator has a legal duty to consider the interest of customers, unlike a conventional insolvency process where the primary duty is to creditors."

[williamcooper104] 22/11/2021 12:18

https://news.sky.com/story/bulb-on-brink-of-collapse-amid-government-talks-with-creditor-12475565Here's the link to the full sky story

[speedsgh] 22/11/2021 12:08

Exclusive: Bulb, Britain's seventh-biggest energy supplier, is close to collapse, a move that will lead to 1.7m UK households being forced to change energy supplier. The government is in talks with Bulb's secured creditor about the fate of its £50m loan to Bulb. Full story soon.

----------------------------

From NAV and Investment Update on 14 Oct...



... Given the recent media commentary around the UK energy market, SEQI has been in active dialogue with Bulb Energy Limited ("Bulb"). The drawn portion of SEQI's loan to Bulb is GBP55.0 million (approximately 2.9% of NAV). The loan is structured as senior ranking debt, secured on all the assets of Bulb, and accounts for all the senior ranking debt of Bulb. In the opinion of the Investment Adviser, the value of these assets exceeds the drawn loan amount. SEQI continues to actively engage with Bulb Energy Limited on an ongoing basis.

[williamcooper104] 12/11/2021 23:34

2.5 years duration On the positive front SEQIs balance sheet is strong so a few credit losses won't lead to catastrophic losses Though 50 percent mezz/hold co loans (hold co usually means structurally subordinated) Those loans are effectively leveraged in that the ratio of senior to junior gives you a leveraged loss (so basically one way negative leverage)

[williamcooper104] 12/11/2021 23:16

Bulbs got £600m of liabilities but only £50m of SEQI senior secured debt You'd like to think that that £50m would rank ahead of trade creditors but given that those creditors are mainly consumers and the special admin regime who knows how the debt stack will work??? You need to take great care under English law that you've actually secured debt agains fixed assets - calling it secured doesn't mean it's secured

[williamcooper104] 12/11/2021 23:11

Yep I liked having SEQI too; just concerned that a discount at the currently time is more in order than a premium At least it's big and liquid so super easy to trade in and out of

[williamcooper104] 12/11/2021 23:08

Interest rate rises (so long as they don't lead to credit issues with borrowers) shouldn't be too much of a problem, SEQIs loan duration is pretty low (which isnt what you'd expect for infra loans highlighting how what we've really got is mainly a high yield loan book with an infra flavour)

[cocopah] 12/11/2021 17:33

Yeah, I got out at 1.09 (my average was 1.08) just to try and get my price paid down before interest rates start rising next year. I didn’t really sell to make any profit (obviously) and I’ll be back in if it hits 1.02 to 1.04 again. I like having SEQI in my portfolio, so fingers crossed. Of the three investments in trouble, Bulb seems to be the real issue. I was surprised that the potash one went belly-up though. I was expecting a lower NAV on this update, so for those currently investing that’s great news. GLA