Sqn Asset Finance Income Share Discussion Threads

[spectoacc] 24/1/2020 13:58

Feels AEWL-esque to me, a long period of silence to follow, followed by "Sticking with same manager but at slightly reduced fee".

Really can't see them winning the Nov vote BUT the 9 year average loan term, failure so far to resolve Suniva, and now the long term AD issues makes me think keeping it going might even be the best option.

Either way, it won't be decided by us.

[eeza] 24/1/2020 13:55

Still ongoing.

[spectoacc] 24/1/2020 13:50

Not sure "panic" is apt - perhaps "rational".

[damp seaweed] 24/1/2020 08:20

Initial market reaction is favourable.
Let’s hope we have seen the end of the panic selling.

[spectoacc] 24/1/2020 08:15

Ergo, a case in point: SSIF.

"-- The SQN Secured Income Fund is managed by Dawn Kendall who joined to set up a separate subsidiary for SQN in April 2017 in order to take over stewardship of the trust. Dawn has over 30 years experience of fixed income investing, previously holding senior positions at Twenty Four, Investec, Architas, Newton and SG Warburg.

-- The Fund is very well diversified across sectors with the diversity of borrowers reducing thematic or sector risk. The Fund does not hold any exposure to Anaerobic Digestion projects and therefore will be unaffected by the write downs associated with these assets in the sister fund SQN Asset Finance Income Fund managed by Neil Roberts."

[spectoacc] 24/1/2020 07:47

This looks like bog-standard IT Board b*llocks to me, much as we saw at AEWL.

Whenever a debt fund has come up for new management before, guess who's taken it on... Oh yes, SQN.

Who on earth wants to try to manage their AD exposure? It's super-niche.

What would be interesting is to know is whether this includes the (perfectly healthy - so far) C's.

The Board aren't going to save themselves from November's vote with a plaintive RNS asking for potential new managers to contact them.

[damp seaweed] 24/1/2020 07:40

I don’t see why it should be a particular difficulty. It is not as if they have set the performance bar particularly high.
Rolling it into another fund or appointing a specialist in winding down assets I expect to be quite doable.
Quite where the continuance management of the c shares fits in is unclear.

[spectoacc] 24/1/2020 07:29

Good luck finding an alternative manager to SQN. Would you take it on?

[damp seaweed] 24/1/2020 07:22

Strategy Review.

I suspect that they are under pressure to begin winding up the fund even before Nov. Continuation vote.



It seems like a good idea ......IMHO

[spectoacc] 23/1/2020 14:43

Wish I hadn't set a target now ;)

[eeza] 23/1/2020 14:35

Slowly creeping down to your 50p, spec

[spectoacc] 23/1/2020 13:55

I'd still like them lower. My Deloitte point may stand, but increasing the provision to that extent (whatever extent they come out with!) isn't a sign that they're confident in making/exceeding any losses.

Rescheduling does seem to be the norm for these debt Trusts, but as HWSL has shown, AD seems possibly to be a special case.

[chucko1] 23/1/2020 12:52

I have read up to about page 72, but then felt sorry for the unfed goldfish upstairs. They point out that the performances of several assets have tended to be volatile, with suspended payments and the like, but so far have ended up making, or exceeding, the targeted returns. The restructuring have offered opportunities of increasing the returns, though they have been disconcerting to the investors as it all plays out.

Doesn’t mean that will continue, and especially as they have such a concentration in the AD assets.

Investing in size here is a big call on management. Many seem to have voted negatively the last few days. My own jury is still out, but I like the price here and will look to repurchase the remaining 80% that I sold (maybe not all) as and when. Or buy the Cs if they fall a little further.

[spectoacc] 23/1/2020 12:01

Yes fair point - they've previously sold AD investments, and also have equity kickers in some of them.

But - the fact remains - 109 months is an average, and if my maths is right that's over 9 years. @Chucko1, how long do you want to wait for winding up? ;)

(And the subsidiary point - if average is 9 years, how long must some of them be? 20 years?).

The AR is very interesting, tho I'll admit to not having read all 101 pages, nor having read much beyond the headlines before previous purchases.

[scburbs] 23/1/2020 11:13

The SQN debt is expensive so challenging for a borrower to leave in place long term.

I believe the AD strategy was give the loan a long term, but expect the loan to be refinanced with cheaper debt once the plant is operationally stabilised (& profitable!). The early repayment has a penalty (but still cheaper for the borrower to refinance assuming they have a successful business at that point!) which enhances the IRR return for SQN above the basic lending rate of say 9%.

Therefore, 109 months is probably excessive as it assumes no one refinances. They have already exited 4 AD assets which presumably were originally very long term loans.

[chucko1] 23/1/2020 09:57

They didn’t expect not to continue! A long workout would be OK.

[spectoacc] 23/1/2020 09:46

@scburbs - also interesting reading the last AR, they were commenting on lots of other players moving into their space, hence I think the "style drift". I admit that may not be positive for the C's.

SQN will no doubt claim they'll make a full recovery in time, but eg how much longer can Suniva roll on, with the divi uncovered in the meantime?

And I just don't get this 109 month average duration, when a continuation vote is coming up.

[scburbs] 23/1/2020 09:23

Hi SpectoAcc. Agreed. I would expect them (HWSL) to make some recovery, albeit a 100% provision and a statement about further costs to recovery should mean there is some risk.

Certainly the risk to SQN until they are sorted (ideally exited) is much higher than 13p as a provision at that level would only be for a c. 1/3rd loss.

SQN could definitely do better, but very difficult for an investor to assess properly. What you can say for sure is nearly 40% of your portfolio (ords) becoming exposed to impairments at around the same time is not good risk management/diversification.

The ord share pool is large so no excuses for the concentration risk they created there. Rush to invest the original fundraising (so they can raise more and increase fees) without proper management?

The C share pool appears to have been invested in a more measured way. However, I think investors would have been expecting an experienced manager not one needing to learn on the job or thinking they can worry about diversification once they have raised another few hundred million!

[spectoacc] 23/1/2020 09:00

@scburbs - HWSL may still make some recovery, they're not "gone".

Agree that AD can yet get worse for SQN, being such a big chunk of it, but could also still work out. Trouble is, that would take time and quite possibly more "support" (ie money). November makes that difficult IMO.

[scburbs] 23/1/2020 08:55

The AD assets are c.36p per share. Surely they couldn’t lose the lot? Well HWSL managed to provide 100% on some of their largest loans recently. Those loans were expected to be fully recovered until they weren’t!

Whilst there remains potential for an outcome far worse than 13p it is difficult to assess what discount to adjusted NAV SQN ords might be trading on.

[spectoacc] 23/1/2020 07:02

Thanks @Valhamos, agree with that. I switched out of the ords into the C's a while ago, tho due to Suniva/uncovered divi rather than (at the time) AD.

@andyj - my point about duration?

[andyj] 23/1/2020 00:15

Let us have a look at the scenarios and potential outcomes.1. The AD situation is less serious than feared. Very positive.2. The AD situation removes 13p or more from NAV. The share price declines, stagnates and the continuation vote is lost. The share price moves closer to NAV. Positive. 3. Driven by the need for income, funds back the continuation, buy more and the share price recovers. They win the continuation vote. Very positive. 4. The share price continues to collapse as investors rush for the exit yet they win the continuation vote. Negative. But close to impossible.Thus the continuation vote acts as a safety net in every scenario except a continued decline in NAV. But there is a significant gap to close now. I see an opportunity.

[valhamos] 22/1/2020 17:13

"no.2 couldn't be more opaque." - in the AR it is identified as a "US Dollar-denominated investment in a diversified portfolio of equipment assets through a US insurance company" - should be lower risk because of the spread of assets; these sort of portfolio deals are fairly standard stuff.

I think C is considerably less esoteric because it hasn't got as much concentration in AD and project finance investment. As regards the the largest investment in C note it is the acquisition of an existing business in organic waste processing and there is no mention of AD which is more complicated and requires greater investment.

[spectoacc] 22/1/2020 15:52

Re-reading about the "isolated seller" having pushed it down - maybe they knew more about AD than we all did!

Also noted the auditor change to Deloitte, & wondering if that has in part caused the NAV re-evaluation.

Also noted the top 5 in the Ords from last AR date (end-June 19):
AD Hartlepool
Diversified portfolios USD
AD plant Imperial Park
AD plant Donegal
Suniva

Nos. 1, 3, 4, 5 all gone wrong, even if they hope only temporarily, and no.2 couldn't be more opaque.

Top 5 in C's:
Waste Processing Equipnt
ROVs
Marine Vessels
Diversified Portfolio USD
Wholesale lending arrangements

Barely less esoteric but nothing (yet) gone wrong.

101 pages to go through, could be more posts..

[spectoacc] 22/1/2020 15:43

Just flicking through the last AR, the "Weighted average remaining term of invested portfolio (in months)" for the Ords was 109 months, arguably higher rather than lower now, with the AD issues. Yes, they might be able to sell them on, but puts that continuation vote in November into perspective. Seems a very long time for an average? Over 11 years.