The Lemon Fool

I have only just noticed this announcement that the Enquest retail bonds will pay the next coupon in cash rather than PIK notes:

https://www.londonstockexchange.com/exc ... 38191.html

I used to have a large position in these but sold most of it last year to buy more BBYB. Have been picking up the PIK notes on the small position I still hold in my SIPP though. Might be worth a look at the current offer price of 92.75.

Thanks hiriskpaul. I too held these some while ago but sold them all. The main condition for payment in cash rather than PIK notes is that the oil price remains above $65 for six months prior to the decision date for the distribution. If this is not the case the PIK notes are reinstated. If the oil price stays above $65 for long periods I would be happier buying BP for capital appreciation as well as the yield.

hiriskpaul wrote:I have only just noticed this announcement that the Enquest retail bonds will pay the next coupon in cash rather than PIK notes:

https://www.londonstockexchange.com/exc ... 38191.html

I used to have a large position in these but sold most of it last year to buy more BBYB. Have been picking up the PIK notes on the small position I still hold in my SIPP though. Might be worth a look at the current offer price of 92.75.

Sorry to be slow, but is a PIK note really

https://en.wikipedia.org/wiki/PIK_loan

i.e. when the coupon is due you don't get any cash? The offer price of 92.75 seems quite high in that case.

Matt

Melanie wrote:i.e. when the coupon is due you don't get any cash?

What you do get is a implicit transaction. They pay you interest, you lend it back to them. Provided they can afford to refinance, you see the cash in 2022.

If the price is 92.75 and the coupon 7%, that's a yield around 9% for four years to maturity.

Melanie wrote:

hiriskpaul wrote:I have only just noticed this announcement that the Enquest retail bonds will pay the next coupon in cash rather than PIK notes:

https://www.londonstockexchange.com/exc ... 38191.html

I used to have a large position in these but sold most of it last year to buy more BBYB. Have been picking up the PIK notes on the small position I still hold in my SIPP though. Might be worth a look at the current offer price of 92.75.

Sorry to be slow, but is a PIK note really

https://en.wikipedia.org/wiki/PIK_loan

i.e. when the coupon is due you don't get any cash? The offer price of 92.75 seems quite high in that case.

Matt

Enquest pay PIK notes instead of cash, which after a few weeks get converted into more of the 7% bonds. The most recent coupon payment was in cash though.

The biggest risk with these is of course the price of oil. What will happen to that over the next 4 years is largely guess work.

Yes, I saw these bonds the other day whilst sniffing around for another fixed-income purchase.

This post of yours has unsettled me a tad.

Personally I'd imagine the price of oil to rise/remain the same. The Saudis are in government deficit are they not? So I'd imagine that they will try not to increase supply too much, despite pressure from Donald Trump.

Melanie wrote:Personally I'd imagine the price of oil to rise/remain the same. The Saudis are in government deficit are they not? So I'd imagine that they will try not to increase supply too much, despite pressure from Donald Trump.

Staying the same is one thing we can be sure won't happen! Oil is very volatile.

My money remains on staying in the 60-80 zone, with a real risk of a serious upward spike. But I certainly wouldn't rule out a fall.

Yes, common logic argues that the large OPEC+ producers have an interest in keeping supplies under control, so that the price remains in a sustainable price band (high enough for their revenues, to sustain ongoing explo and development and not to high to stifle economies and demand).

The last 2 years should demonstrate that beyond doubt - balancing output and demand by a few % has raised revenues by nearly 100%. But all that is much easier to say than do! OPEC and it's allies are not a monolith, and countries desperate for cash, as some oil producers are, can be tempted to overproduce to bring in cash, even if it reduces the PoO. And of course a small country assumes their extra production will have a small effect on global prices. But once one starts - what to the rest do ... It requires discipline, with has often been absent.

Peter

Enquest 22s have traded down around 20 points in November alone which looks to me like a larger percentage move than the 21pct drop in Brent crude. Could we see a repeat of 2014/15 price action for this bond?

I have been buying these again since the recent results. Came back today to invest some income that has accumulated in my SIPP to find the price is 3% above what I paid on Thursday. Cannot see any justification other than a Director buying the ords. Anyone seen anything else? Bid rumour, etc?

hiriskpaul - I think it's mainly oil price driven. Don't forget if the oil price averages less than $65 in the 6 months up to the interest payment you will get PIK and with Brent over $70 this morning it must help the price. I'm also long.

Yes could just be oil price thanks. The last 2 payments were in cash, but personally I am not too worried about getting PIKs instead as redemption less than 3 years away now.

I was pleased to see yet another cash payment turn up today. The price seems to be holding up as well, despite the volatility in the oil market.

Available at 82% today.
Have to research the tax treatment to see whether they're worth buying unsheltered.

V8

88V8 wrote:Available at 82% today.
Have to research the tax treatment to see whether they're worth buying unsheltered.

V8

I had a large unsheltered position which I sold a couple of years ago. I treated it as a QCB and did not report the gain. I did of course report the income!

Yes, thanks, a QCB.
The only guidance I have been able to find on the coupon is that it is taxable as arising, whether paid in cash or in kind.
HRT for me, which diminishes its lustre.

Wish one had a crystal ball. The PoO. With central banks cranking up for another insane round of QE, things don't look too sunny.

Still, even if they can't repay the bonds in 2022, I dare say they will be able to kick the can by rolling them over one way or another.

V8

OK, well, complete punt really, what with them being unsecured, but I bought some.
The gain, if it happens, will be useful, and I certainly have enough losses to shelter it.

Running yield about 8.5%.
Which is nothing special really, considering it's taxed as income, and I could buy Legal & General currently at 7% and taxed as divi.
Anyway.
Makes a change from Financials, and with negative interest rates now a Thing, I feel a desire to run away from Financials as fast as I can.
The question is, where to?

V8

Indeed.

RAVP
42TE (Co-Op)
42TF (Co-Op) - I quite like that my exposure is reducing each December
BBYB - very short term now but still a lot more than I can get in a bank account or cash ISA

But I already own too many of the above as well as ENQ1 so any suggestions most welcome.

BWRA.
Of which I have a tankful. But they were deemed safe from cancellation. (mustn't say redemption otherwise GoSiegen will be after me)
BP.B
NTEA

Yes, there isn't much.

I ran away from RAVP after they linked to the rouble.
Can only buy 42TF over the phone which is a nuisance, but do have some 42TE.
As you say, BBYB is short dated now so probably won't add.

V8

A welcome improvement in half year results: https://www.londonstockexchange.com/exc ... 14476.html

The 2022 available today at 52%, amidst the general kerfuffle.

Perhaps rashly, bought a few more.

V8