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Provident Financial debt has become interesting

Gilts, bonds, and interest-bearing shares
hiriskpaul
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Re: Provident Financial debt has become interesting

#87884

Postby hiriskpaul » October 13th, 2017, 11:14 am

New trading statement: http://www.londonstockexchange.com/exch ... 95495.html

In short, the home credit business has been stabilised and the collection rate improved. No FCA decision yet on the potential mis-selling by Vanquis Bank. Confirmation of scrapped dividend.

Following payment of the 2017 bond they say they have cash resources and funding capacity of £236m. 2 debt repayments are due in 2018 (£15m in January 2018 and £20m due March). However, they do not spell out the interest payments, starting with £0.875m today. Over the next 6 months they have £10m on 23 October, £1.95m March, £1.54m April. Total bond repayments per 6 month period is £14.4m, so this should be perfectly manageable. They can also rapidly shrink the home credit assets if they need to simply by cutting back on new loans.

While problematic, the home credit debacle now seems under control and they have no immediate liquidity problems (solved by scrapping the £200m dividend payments). That just leaves the Vanquis Bank issue. In light of all of this I would be happy to buy more of the bonds. Unfortunately though others like the trading statement as well and the bonds have moved sharply higher. I was just quoted 90.828 for 50k nominal of the 6% 2021, ytm 8.8%. Yesterday I was quoted a yield of 10%. So not sure whether to top up at these prices or not.

hiriskpaul
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Re: Provident Financial debt has become interesting

#98468

Postby hiriskpaul » November 24th, 2017, 12:04 pm

The bonds have been drifting upwards over the last few weeks, but the 5.125% 2023 (66WS) has been lagging the others. I bought some this morning for 89.17, for a ytm of 7.4%. That compares to a quote for PF21 of 97.09, for a ytm of 6.9%.

RNS today saying the Executive Chairman Manjit Wolstenholme, has passed away. Other than that, no real news on these, but have noticed that the 2 largest shareholders (Woodford and Invesco) have both increased their position in the ords and Deutsche has been increasing exposure. My reason for buying now is simply a surplus of cash built up in my SIPP and this seemed the best place to put it.

As always, I wish I had bought a lot more of these when I had the opportunity a few weeks ago!

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Re: Provident Financial debt has become interesting

#98811

Postby Wizard » November 25th, 2017, 5:13 pm

hiriskpaul wrote:The bonds have been drifting upwards over the last few weeks, but the 5.125% 2023 (66WS) has been lagging the others. I bought some this morning for 89.17, for a ytm of 7.4%. That compares to a quote for PF21 of 97.09, for a ytm of 6.9%.

RNS today saying the Executive Chairman Manjit Wolstenholme, has passed away. Other than that, no real news on these, but have noticed that the 2 largest shareholders (Woodford and Invesco) have both increased their position in the ords and Deutsche has been increasing exposure. My reason for buying now is simply a surplus of cash built up in my SIPP and this seemed the best place to put it.

As always, I wish I had bought a lot more of these when I had the opportunity a few weeks ago!

Have you decide against 60HU? If so, why? Is it the minimum tradjng amount, or are you concerned that they would be treated more harshly given yhey are institutional rather than retail?

Terry.

hiriskpaul
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Re: Provident Financial debt has become interesting

#98838

Postby hiriskpaul » November 25th, 2017, 7:22 pm

Hi Terry, the reason I did not go for 60HU is that I am still being cautious and not yet prepared to commit the minimum 50k. I would also have had to sell something else in my SIPP in order to raise sufficient cash, whereas I did not need to do that to buy 66WS.

Outside a tax shelter the tax drag is quite high on 60HU as well, due to the 8% coupon. Unlike the quick 3% return on the 2017s, which was mostly a tax free capital gain.

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Re: Provident Financial debt has become interesting

#99008

Postby Wizard » November 26th, 2017, 5:00 pm

hiriskpaul wrote:Hi Terry, the reason I did not go for 60HU is that I am still being cautious and not yet prepared to commit the minimum 50k. I would also have had to sell something else in my SIPP in order to raise sufficient cash, whereas I did not need to do that to buy 66WS.

Outside a tax shelter the tax drag is quite high on 60HU as well, due to the 8% coupon. Unlike the quick 3% return on the 2017s, which was mostly a tax free capital gain.

Thanks Paul, that makes sense.

Terry.

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Re: Provident Financial debt has become interesting

#101695

Postby Wizard » December 5th, 2017, 7:55 am

Keeping an eye on prices today, FCA have started a second investigation into Provident Financial.

Terry.

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Re: Provident Financial debt has become interesting

#101837

Postby hiriskpaul » December 5th, 2017, 4:27 pm

Wizard wrote:Keeping an eye on prices today, FCA have started a second investigation into Provident Financial.

Terry.

Yes, the ords have clearly taken a set back, bonds not quite so much. I hovered over the buy button, but did not proceed, on some more 66WS this morning at 86.5, which would have made a ytm slightly over 8%. Prices have recovered slightly since. Last quote was 86.99. 66HU is still the pick of the bunch IMHO at 98 (ytm 9.1%) for someone prepared to commit 50k. As mentioned before I would really want them in a tax shelter though to mitigate that 8% coupon.

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Re: Provident Financial debt has become interesting

#101840

Postby hiriskpaul » December 5th, 2017, 4:43 pm

FredBloggs wrote:
Wizard wrote:Keeping an eye on prices today, FCA have started a second investigation into Provident Financial.

Terry.

If PFG were to go belly up, what will happen to these investments?

If placed into administration, bondholders would need to either sell or wait out the process. As I think I mentioned before, there is no subordinated debt, so senior bondholders would first be in line to suffer losses (after ordinary shareholders of course). If it happened I would quite probably buy more rather than selling as I reckon the big shareholders would eventually agree to a rescue. Hard to say for sure though as it would take a much more serious revelation for Provident to be put into administration. Worst possible outcome, bonds are worthless.

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Re: Provident Financial debt has become interesting

#101848

Postby hiriskpaul » December 5th, 2017, 5:33 pm

On a positive note, IMHO today's Moneybarn announcement is small beer compared with the chaos in the consumer credit division, which has hopefully been stabilised. I am also much more concerned about the FCA's investigation into the Vanquis repayment option plan product. Provident is still a very cash generative business, they have stopped paying £200m in dividends and are able to rapidly shrink their CCD loan book if they need to as it is very short term. Overall I am not feeling uncomfortable with my position and may well increase it soon.

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Re: Provident Financial debt has become interesting

#102781

Postby hiriskpaul » December 8th, 2017, 3:20 pm

Finally decided to buy the institutional 66HU after getting a decent price. Picked some up at 96.75, for a ytm a tad under 10%. Not bad for a 20 month bond. Had to move some US shares ETFs out of my SIPP to fund it, but I worked out it was well worth doing that as the tax saving on 66HU interest significantly outweighs the tax saving and dealing costs on the ETF.

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Re: Provident Financial debt has become interesting

#103064

Postby tincture » December 9th, 2017, 11:34 pm

Hiriskpaul,

I've followed you into other trades over the years (and done well!) - lloyds prefs, Lloyds ECNS and most recently the Co-Op 77UQ.
The later of which we I feel we dodged a bullet as the sub-ordinated debt got hit.
I am more nervous with Provident. I am a big believer that being retail, we are small fish, and need to swim underneath the belly of a shark for protection. The shark in the case of lloyds is/was being too big to fail, and co-op being very much in the public eye and had Mark Taber working behind the scenes. I can't see a clear protecting shark in this case...and too many negatives - 2 FCA investigations!

<crank conspiracy theory alert>
And also Manjit Wolstenholme dies suddenly at 53 - who was charged with turning business around after resignation of then CEO Peter Crook.
According to online actuary tables, chances of death OVER 5 YEARS for previously healthy 53 non smoking women is 0.8%! Was she INCREDIBLY unlucky or was it perhaps suicide after taking on a poisoned chalice?
</alert>

--
tincture

PS
I am buying lloyds ords and passive equity trackers. Partly due to lack of ideas.

hiriskpaul
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Re: Provident Financial debt has become interesting

#103472

Postby hiriskpaul » December 11th, 2017, 7:35 pm

Hi tincture, I agree that there is no backstop to these. No subordinated debt or a larger holding company able to recapitalise. However, Woodford and Invesco between them hold 43% of the ordinary shares, increased since the problems were announced and Woodford has been very vocal with his support. There would be a huge loss of face now if either walked away from a rights issue or other bailout, should one be needed.

I am fairly confident that Provident will not default. I think the most likely scenario is that they will muddle through, paying no dividends on the ords for a while, maybe some book shrinkage and perhaps paying some reparations due to overenthusiastic selling of ROP and car finance. Crunch time will be when they have to find £250m to repay 66HU. Either they will be able to fund this from operations and not paying dividends, or the situation over the current uncertainties will be clear enough for them to tap the bond markets again, or they may need help from shareholders to avoid default, e.g. a rights issue or issue of prefs/convertibles to larger shareholders.

What I am not at all confident about is whether we have yet seen the lowest prices. One troubling thing is the shortest dated bond, the institutional 66HU, has the highest yield to maturity. That may indicate over optimism by retail bondholders, which could evaporate on more bad news, leading to more appropriate higher yields. Whatever the reason for the discrepancy, I do not feel comfortable taking on a big position on the retail bonds yet.

The January trading statement is going to be interesting.

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Re: Provident Financial debt has become interesting

#111591

Postby Shinyuk » January 18th, 2018, 12:33 pm

I contemplated dipping in with PF21 two days ago but the price has shot up by 3-4 points. Sitting on the sidelines for now.

hiriskpaul
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Re: Provident Financial debt has become interesting

#111993

Postby hiriskpaul » January 19th, 2018, 11:40 pm

Hiking in the Andes at the moment, so only just read through trading statement. Disappointing is my initial reaction. Loss on CCD fiasco at the top end of expectations, but at least not above it.

Scant news on the regulatory issues. "commenced a dialogue with the FCA with a view to reaching a resolution of the investigation into ROP" I think is a euphemism for "thrashing out the fine to be paid and/or compensating customers who were missold". Ditto for the Moneybarn issue.

All in I think it more likely than not now that a capital raise will be required. The drop in price of the ords suggests the market thinks this is likely as well. Somewhat surprisingly to me is that there has been little change in the bond prices.

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Re: Provident Financial debt has become interesting

#111994

Postby hiriskpaul » January 19th, 2018, 11:56 pm

FredBloggs wrote:I'm not a bond holder at PFG, but am curious. Does the recent announcement by PFG signal problems ahead for bond holders? I note that it is said PFG will go to investors for funds. To me, that says share holders will be bailing out bond holders and not doing anything to stabilise, improve the underlying businesses? Thanks for the thoughts. PFG = Extra long barge pole for me, actually.

I would say increased risk for bondholders rather than "problems". Cannot see any mention of going to investors for funds in the trading statement, so is this press/broker speculation?

The purpose of Going to shareholders for capital is to stabilise a business and the side effect will inevitably mean a bails out bondholders. The alternative for shareholders is to walk away and hand the problem to bondholders. In this case The cost of the regulatory issues would need to be really high before shareholders throw in towel, but at present the costs are unknown, so could happen.

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Re: Provident Financial debt has become interesting

#120561

Postby hiriskpaul » February 26th, 2018, 3:03 pm

Rumours of a rights issue pummeled the ords this morning, but they have recovered somewhat and are now down just 6%. Strangely the prices of the retail bonds also dropped this morning, but the institutional 2019s went up. Now they are all up on the day by about 2%.

Results out tomorrow. Will be excellent news if the rights issue is confirmed.

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Re: Provident Financial debt has become interesting

#120704

Postby hiriskpaul » February 27th, 2018, 10:36 am

Well that turned out far better than it could have done:

Total estimated cost of settlement of £172.1m reflected in the 2017 financial statements comprising customer restitution in the form of balance reductions and cash settlements of £127.1m, other estimated costs and provisions of £43.0m and a fine levied by the FCA of just under £2.0m.
..
Moneybarn continues to cooperate with the FCA in its ongoing investigation into affordability, forbearance and termination options with an estimated liability of £20.0m


Only a £300m capital raise via a rights issue. Fully underwritten Rights issue supported by Woodford and Invesco, so 48% of shareholders in favour. Likely far more than they need, but will make it much easier to return to bond markets and roll over the 8% 2019s at a more reasonable price.

Vanquis continuing to expand.

Ords and bonds all sharply up. Despite the rises, probably a very good time to buy more of the bonds at yields over 6%. I will not be buying more at present though as I already have sufficient exposure.

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Re: Provident Financial debt has become interesting

#120710

Postby Surerera » February 27th, 2018, 11:12 am

Agreed, the bonds still look cheap at over 6%, I bought PFG7 this morning.

hiriskpaul
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Re: Provident Financial debt has become interesting

#123189

Postby hiriskpaul » March 8th, 2018, 2:25 pm

Just sold my 8% 2019s at 104 (5.39% YTM). Needed to raise cash as I want to withdraw some cash from my SIPP this financial year and something had to go. If it was not for that I would have held on to them as I think the yield is excellent for current risk.

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Re: Provident Financial debt has become interesting

#128666

Postby hiriskpaul » March 28th, 2018, 5:50 pm

Some unwelcome news - "Lawyers acting for Aberdeen Standard Investments, a top ten shareholder in Provident, are seeking compensation for losses due to the subprime lender's failure to disclose details of the UK Financial Conduct Authority investigation into its Vanquis Bank subsidiary, according to the newspaper."

http://www.londonstockexchange.com/exch ... 80500.html

I was hoping to have seen the last of any drama with this company and was considering buying a few more PF21. Think I will leave for now.


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