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SQN Asset Finance Income Fund (SQN)

Closed-end funds and OEICs
langley59
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SQN Asset Finance Income Fund (SQN)

#78137

Postby langley59 » August 31st, 2017, 12:04 pm

SQN is a diversified equipment leasing and asset finance investment company. It leases business assets or lends money secured on business assets such as anaerobic digestion plants, solar and wind energy generation equipment and vessels in the UK, Western Europe and the US. It pays a monthly dividend and yields c 7%. It has historically traded at a substantial premium of 10% to 15% above NAV.

However in April this year it reported that a US solar cell manufacturer it had lent approx. 7% of its NAV to (Suniva) had ceased production and had stopped repayments on its financing due to falling solar cell prices as a result of cheaper imports from China and other SE Asian countries. Suniva went into Chapter 11 bankruptcy and SQN provided additional financing as a 'debtor-in-possession' whilst Suniva pursues a section 201 trade case with the US International Trade Commission. The trade case was heard this month and the Commission is scheduled to release its findings on 22nd September. If the Commission finds on behalf of Suniva it will make a recommendation to the White House. Suniva hopes that the White House will impose tariffs on imports such that its cost of production in the US becomes competitive again. The other major solar cell manufacturer in the US SolarWorld has joined the trade case with Suniva. However there is considerable opposition to the trade case by others in the US solar energy industry such as installers and utilities as the plunging price of imported solar cells benefits them and helps solar energy compete with fossil fuel energy generation.

Since the revelation of the Suniva matter SQN's share price has fallen from 115 to about 100, removing the premium to NAV, which is reported at about par inclusive of the Suniva loan at cost. To date monthly dividends continue to be paid with no reduction as a result of this matter.

The worst case scenario in relation to Suniva is presumably that the case is lost and the full value of the loan written off, say 7% of NAV. This would reduce NAV to c 93. Hence the current share price could be viewed as reflecting a full write down and a 7% premium to NAV, much lower than the historic premium. The best case scenario is that President Trump imposes tariffs, which would be consistent with his previous statements about Chinese imports, Suniva thrives again and the loan repayments recommence.

I hold a position in SQN with an average cost of just under 110 and am thinking of topping up at 100 or below. Even if the Suniva case goes the wrong way there seems to be limited further downside and a still healthy yield on the rest of the portfolio. Does anyone else hold SQN and what views are out there?

Markab01
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Re: SQN Asset Finance Income Fund (SQN)

#78207

Postby Markab01 » August 31st, 2017, 3:14 pm

I also hold SQN and generally agree with your comments.
It was bought and held for income.

I believe that a total loss from Suniva already factored into the current price.

Unless there has been dumping of solar cells onto the US market, I do not think the White House (despite Trump's rhetoric of "America First") will do anything. How big is the US solar cell manufacturing industry compared to say coal or cars? How many votes will any action bring in?

I may have a pleasant surprise and Suniva comes out of Chapter 11 as a leading manufacturer of solar cells and the share price goes back up.
However, I can live with the current situation.
I am not buying any more shares in SQN as it was slightly above the median for holdings in my portfolio and is now slightly below. I am not selling shares either as I think that the reasons I bought them in the first place are still valid and that this is just one of those unfortunate glitches.

Markab01

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Re: SQN Asset Finance Income Fund (SQN)

#78223

Postby UncleEbenezer » August 31st, 2017, 4:46 pm

Markab01 wrote:Unless there has been dumping of solar cells onto the US market, I do not think the White House (despite Trump's rhetoric of "America First") will do anything. How big is the US solar cell manufacturing industry compared to say coal or cars? How many votes will any action bring in?

There's overcapacity all round in solar cell manufacturing. And the US already has heavy protectionism around imports.

Some years back (in his first term), Obama added to that overcapacity by bailing out his favoured lame duck. That was probably pork-barrel for the congressman representing the company in question - which is also how I'd imagine anyone might secure a bailout from Trump.

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Re: SQN Asset Finance Income Fund (SQN)

#79719

Postby mickeypops » September 7th, 2017, 5:13 pm

I sold out of my holding in SQN, at a loss or around 11% of its capital value, although my TR was a very modest loss once the divs are taken into account.

Reasons? Well, the parent company guarantee doesn't seem secure. I don't understand why the trust had to invest in funding the legal case, which in any event seems unlikely to get it anywhere -there was a Citywire article which explained the challenges. Plus, I've lost confidence in the management of the trust in making asset-based loans involving such a high proportion of the NAV into a single risky investment.

I hope for my fellow lemon-fools who still hold that my doubts are unrealised.

MP

langley59
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Re: SQN Asset Finance Income Fund (SQN)

#82767

Postby langley59 » September 22nd, 2017, 4:25 pm

langley59 wrote:The trade case was heard this month and the Commission is scheduled to release its findings on 22nd September. If the Commission finds on behalf of Suniva it will make a recommendation to the White House.

The US International Trade Commission found in favour of Suniva and SolarWorld today. The Commission will now consider what remedies to apply before this goes to the White House for approval.

langley59
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Re: SQN Asset Finance Income Fund (SQN)

#94370

Postby langley59 » November 9th, 2017, 12:15 pm

The SQN saga continues to drag on. The US International Trade Commissioners have made different individual remedy recommendations all of which (unfortunately for SQN holders) are less stringent than Suniva and its co-petitioner had asked for. The Commission's formal report is expected to be delivered to the White House on November 13th with a 60 day period for the President to deliver his verdict, which as I understand it could range from doing nothing, adopting the recommended remedies or adopting more stringent remedies. We will see.

In the meantime SQN issued an RNS yesterday in relation to another problematic loan to Snoozebox, a provider of temporary modular hotel rooms whom it has forced into administration. SQN states that it intends to reposition the assets with third parties. This loan is for c£8m or 1.5% of market capitalisation.

The share price has now tracked down to the low 90s and I have bought some more as I think / hope it is an overreaction.

langley59
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Re: SQN Asset Finance Income Fund (SQN)

#112666

Postby langley59 » January 22nd, 2018, 10:05 pm

The White House have just announced the imposition of tariffs of 30% on solar imports, falling by 5% a year in each of the 3 subsequent years. I believe this is broadly in line with what the trade commissioners had proposed, albeit less than Suniva had petitioned for.
Somewhat of a victory for SQN I suppose, I for one hope the share price will track back up now.

langley59
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Re: SQN Asset Finance Income Fund (SQN)

#127401

Postby langley59 » March 23rd, 2018, 8:37 am

SQN half year report containing asset review issued today for those interested:

https://www.investegate.co.uk/sqn-asset ... 00036785I/

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Re: SQN Asset Finance Income Fund (SQN)

#246582

Postby formoverfunction » August 23rd, 2019, 4:06 pm

Quiet in here for a time, any views on the 30 May SQN Asset Finance Income Fund Limited Progress on Suniva Investment RNS?

I'd be very interested in hearing views from long term holders or watchers.

On the face of it, it looks priced about right. A discount over the Suniva issue and then a little bit more on expectation of a more negative outcome (priced below the net asset hit on the basis they aren't able to make the substantial recovery they hope). Cynical I know but...

My gut feel is that is I'd rather wait on the next update, even if that means buying a tad higher.

I think it's likely they were involved with Energia Group, N Ireland, windfarms. Not that it's important. Those I'm thinking are the repaid debts. Recent name change, they used to be Viridian.

Which brings me to my next question. Any one drilled down into the actual assets they hold? I know that's not easy and invloves a bit of guess work.

Given the already big hit of Suniva has taken them down past 93p, why now at the low 80's?

Cheers,

formoverfunction
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Re: SQN Asset Finance Income Fund (SQN)

#246587

Postby formoverfunction » August 23rd, 2019, 4:29 pm

So from what I remember of them, and been able to gleen from the initial run though:

They have the Suniva problem.

Before that Snoozebox

and there's an ongoing issue with marine vessels.That may have been resolved.

To be fair they appear to have been able to get workarounds, but does that mean, even with the existing yield, and asset backing, there's greater risk in here than you might at first think?

langley59
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Re: SQN Asset Finance Income Fund (SQN)

#246811

Postby langley59 » August 24th, 2019, 8:34 pm

I hold a reasonably large chunk (for me) long term for the dividends and am tempted to buy more at this price but won't. The last published NAV was c95p as at 30 June. What I fear is an announcement stating that they are reducing the monthly dividend. I know from the half year report issued in March that the dividend is not covered. It could be a great opportunity at the moment to add more and reduce one's average acquisition cost but there is a reason the share price keep falling and I don't know what it is.


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