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Learning about investments in bonds

Gilts, bonds, and interest-bearing shares
Alaric
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Re: Learning about investments in bonds

#129653

Postby Alaric » April 3rd, 2018, 10:59 am

swill453 wrote:Is that a joke? As in "apart from the sanitation, the medicine, etc., what have the Romans ever done for us?"


No it isn't. A Pref share and a Bond, particularly a permanent or irredeemable bond both provide a fixed income, If it's in an ISA or not otherwise subject to tax, the outcome is the same, and they will be priced based on the level of income and the perceived risk above Gilts. If the issuing Company gets into trouble or wants to renegotiate the terms that's only where legal and winding up issues come into play.

TheMotorcycleBoy
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Re: Learning about investments in bonds

#129659

Postby TheMotorcycleBoy » April 3rd, 2018, 11:43 am

Alaric wrote:
Melanie wrote:Yes, sure. And as it is not explicitly stated in the prospectus, are we just to assume that as being 100 for this bond.


That is the way the market operates. Mind you some clever lawyers at Aviva seemed to think that the word "irredeemable" didn't mean that Aviva couldn't "return the capital" at par. This was in the context of a market presumption that "irredeemable" meant there was no redemption date and that the income payments would continue for ever or at the very least could only be terminated with the agreement of both the issuer and the holders.


Ok back to the subject of the XS0089553282 AngliaWtr bonds.

In other words, were I to have bought a multiple number n of the bonds back in '98, at a cost of:

n x 98.825p


then if I keep them till August 2023, then provided no default, call etc. between now and then, AW would then redeem me at

n x 100.0p

?

Matt :)

Alaric
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Re: Learning about investments in bonds

#129665

Postby Alaric » April 3rd, 2018, 12:04 pm

Melanie wrote:
Ok back to the subject of the XS0089553282 AngliaWtr bonds.

In other words, were I to have bought a multiple number n of the bonds back in '98, at a cost of:

n x 98.825p


then if I keep them till August 2023, then provided no default, call etc. between now and then, AW would then redeem me at

n x 100.0p



Indeed so. As to why they sold them at a cut price, that's lost in the mists of time. It's possible that interest rates had risen slightly or the perceived risk of Anglian had increased, so they had to offer a little extra to investors at issue.

genou
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Re: Learning about investments in bonds

#129666

Postby genou » April 3rd, 2018, 12:04 pm

Melanie wrote:
Ok back to the subject of the XS0089553282 AngliaWtr bonds.

In other words, were I to have bought a multiple number n of the bonds back in '98, at a cost of:

n x 98.825p


then if I keep them till August 2023, then provided no default, call etc. between now and then, AW would then redeem me at

n x 100.0p

?

Matt :)


Yes. I haven't looked at the prospectus; the original discount will have been a sweetener, or a way of dealing with the first interest period.

TheMotorcycleBoy
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Re: Learning about investments in bonds

#129670

Postby TheMotorcycleBoy » April 3rd, 2018, 12:12 pm

Alaric wrote:Indeed so. As to why they sold them at a cut price, that's lost in the mists of time. It's possible that interest rates had risen slightly or the perceived risk of Anglian had increased, so they had to offer a little extra to investors at issue.


genou wrote:Yes. I haven't looked at the prospectus; the original discount will have been a sweetener, or a way of dealing with the first interest period.


Phew!

Got there in the end. As a comparison I'll look at some other prospectuses and see what their issue prices are.

"Finally", any ideas as explanation of the discrepancy in the quoted value of the coupon. All the public listings of trades of this instrument (e.g. HLs and IIs broker sites) state a figure of 6.875%, however the prospectus quite clearly states 6.625%. Any idea what's going on here?

Matt

hiriskpaul
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Re: Learning about investments in bonds

#129672

Postby hiriskpaul » April 3rd, 2018, 12:20 pm

Could not give you the specific reason for that particular bond, but sometimes coupons are revised during the life of a bond. For example, if the issuer wants to extend the maturity date, or offer more senior debt (against conditions stated in the prospectus) then they have to get bondholders to agree to a change in terms. Bondholders will typically not vote for any changes like that without some form of compensation. Compensation often takes the form of an increase in coupon.

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Re: Learning about investments in bonds

#129698

Postby TheMotorcycleBoy » April 3rd, 2018, 2:27 pm

hiriskpaul wrote:Could not give you the specific reason for that particular bond, but sometimes coupons are revised during the life of a bond. For example, if the issuer wants to extend the maturity date, or offer more senior debt (against conditions stated in the prospectus) then they have to get bondholders to agree to a change in terms. Bondholders will typically not vote for any changes like that without some form of compensation. Compensation often takes the form of an increase in coupon.

Ok. Fair enough.

I guess the next logical question would be "where would such a revision be documented?"

IOW does such a thing as an amended prospectus exist?

genou
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Re: Learning about investments in bonds

#129713

Postby genou » April 3rd, 2018, 3:25 pm

Melanie wrote:I guess the next logical question would be "where would such a revision be documented?"


The obvious place would be the Anglian Water corporate site, under some heading like "Debt Investors"; but don't rush, it's not there AFAICS.

Melanie wrote:IOW does such a thing as an amended prospectus exist??


There must have be some sort of arrangement, because there is now an annual RNS stating the applicable interest rate, e.g. http://www.londonstockexchange.com/exch ... 90091.html

Having found that I went looking in the original prospectus to see if there was a scheduled move to floating from the get go ( which is not uncommon) , but again there's nothing there.

It's a bit odd for a retail sized bond that it's terms are so obscure.

TheMotorcycleBoy
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Re: Learning about investments in bonds

#131049

Postby TheMotorcycleBoy » April 10th, 2018, 7:47 am

greygymsock wrote:i'd suggest cancelling those, if you can. (their website says there is a 14-day cooling off period.)


GoSeigen wrote:Mel, I endorse greygymsock's comments wholeheartedly.

This is a high risk investment with completely inadequate interest compensation. As others have said these Castle Trust bonds are bonds only in the sense that you are buying a loan note, but they are NOT negotiable instruments and NOT listed, which means you cannot offload them to another investor like a tradeable bond.


Thanks we had a rethink, and determined that there were simply "better things to do with the money" spent on CTs "bonds". So I cancelled, and after a few days of phone calls, they returned our money.

:)

Matt

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Re: Learning about investments in bonds

#269805

Postby GoSeigen » December 7th, 2019, 11:58 am

TheMotorcycleBoy wrote:For what it's worth we spent 2k on a 1 year 2.25% product. We are umming and ahhing about actually keeping it.

We spent a while chatting to the FSCS regards Castle Trust, and you people are right it won't be guaranteed, since a) it's not a bank b) we've not been advised on the safety of this investment by a regulated IFA etc. etc.

However, default/risk wise, to me, this seems on a par with buying any other corporate bond from the open market. The only difference in my naive brain, being that we use the opportunity to trade the risky instrument should that eventuality arise. However since we've got this for only 1 year, and CT have been running for several years, we are going to cross our fingers! (I think!!)

Thanks again for all your advice.

Mel


Old thread but wanted to update with latest news, and also offer an apology to Mel and the MCB for my ultra-skeptical view: I think my caution may have been misplaced, because Castle Trust appear to be a serious business that is going places. I hope I didn't give them sleepless nights unnecessarily:

https://www.fintechfutures.com/2019/11/ ... nger-bank/


GS

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Re: Learning about investments in bonds

#269809

Postby TheMotorcycleBoy » December 7th, 2019, 12:10 pm

GoSeigen wrote:
TheMotorcycleBoy wrote:For what it's worth we spent 2k on a 1 year 2.25% product. We are umming and ahhing about actually keeping it.

We spent a while chatting to the FSCS regards Castle Trust, and you people are right it won't be guaranteed, since a) it's not a bank b) we've not been advised on the safety of this investment by a regulated IFA etc. etc.

However, default/risk wise, to me, this seems on a par with buying any other corporate bond from the open market. The only difference in my naive brain, being that we use the opportunity to trade the risky instrument should that eventuality arise. However since we've got this for only 1 year, and CT have been running for several years, we are going to cross our fingers! (I think!!)

Thanks again for all your advice.

Mel


Old thread but wanted to update with latest news, and also offer an apology to Mel and the MCB for my ultra-skeptical view: I think my caution may have been misplaced, because Castle Trust appear to be a serious business that is going places. I hope I didn't give them sleepless nights unnecessarily:

https://www.fintechfutures.com/2019/11/ ... nger-bank/


GS

Don't worry mate.

You guys taught us some good things. After convos like ones if this thread, we started think more about "risk v. return". It was *you* who drummed that important message into our skulls!

We also ditched the idea, back we started this investment thing (March 2018), of lobbing lots (to us, i.e. several K) all at one firm locking it in for what is actually a really low RoR. Now, I'm hoping we are on a much better track accumulating a more diversified mixture of liquid assets.

Matt (and Mel!)

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Re: Learning about investments in bonds

#269956

Postby Gan020 » December 8th, 2019, 12:43 pm

GoSeigen wrote:Old thread but wanted to update with latest news, and also offer an apology to Mel and the MCB for my ultra-skeptical view: I think my caution may have been misplaced, because Castle Trust appear to be a serious business that is going places. I hope I didn't give them sleepless nights unnecessarily:

https://www.fintechfutures.com/2019/11/ ... nger-bank/


GS


Article here which tries to unravel whether their bonds are inside or outside of the scheme which concludes with Castle Trust can assert whatever they want but the test will be determined by FSCS at the time of default: https://bondreview.co.uk/2018/01/26/cas ... -the-fscs/

Now, Castle Trust say they will get their banking licence in Spring 2020 if all goes well. The costs of obtaining and maintaining such a licence are not small and will eat up most or all or more of that £1.2 half year profit. Reference to PCF Bank who recently went through this process gives some estimate of this figure. Of course it will allow them to lower their cost of borrowing which I haven't calculated.

To my mind the money going into this sort of sector (P2P, minibonds etc.) is drying up and I wonder whether Castle Trust are trying to become a bank to overcome this problem.

Because Castle Trust have an underlying problem in that their loan profile does not meet their savers profile and need to continue issuing bonds to repay the expiring ones. Becoming a bank to offer instant access accounts (thus improving their NIM) makes the issue worse not better.

On balance they hold £163m of cash and cash equivalents against a loan book of £656m. I'm not exactly sure what the Tier1/2 capital requirements will be for them as a bank but they seem well capitalised. I note JC Flowers are they major shareholder and would I'm sure stump up any extra capital required. If I look at this and ignore the history it looks like a success story. They won't get my money though. Not until they get the banking licence. I can't quite put my finger on why.


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