ONESAVINGS BANK PLC 6.591% PERPETUAL SUBORDINATED BOND

Graysilk

Hi Everyone,
I'd appreciate comments regarding OneSavings Bank 6.591% which is undated but callable on 7th March 2016 and at the time of writing 98p, If called it would produce a 14% yield.
I have tried unsuccessfully to find the prospectus to check out the terms and turned to the Forum for some help.
If it isn't called does it run indefinitely or is it callable at a later date and whether it is non cumulative, and any other conditions I should to be aware of.
The bank looks in pretty good shape and has reported excellent financial results, with new loans and advances of £986 million in the first 9 months of 2015 increasing its total loan book by 25% to £4.9 billion, accompanied by strong margins, a sound capital base and upward re-ratings by most analysts tracking the stock.
I am a little concerned about the liquidity should I want to get out. However, as I am trying to build an income portfolio for my impending retirement providing it continues to pay the coupon that wouldn't be a major issue.

john

here you go...

http://www.rns-pdf.londonstockexchange.com/rns/2980z_-2006-3-3.pdf

DSC

I've held this for a while and it's proven a good investment. However, if you are considering purchasing now the issue is what will happen if it's not called, which I think is that it reverts to the benchmark gilt (probably 5 year) + 3.4%.

One Savings had a previous bond with a call date in 2014 but this was apparently not called.

Further info available here:
http://www.fixedincomeinvestments.org.uk/permanent-interest-bearing-shares-pibs-table-prices

colin

Graysilk, I looked at these see my post of 17 th may this year. They are callable every 5 years and if not called reset at 340+ prevalling gilt rate. See Cannacord genuity link {pibs} on the usefull links page at the top of the page. The entry states one savings bank has no plans to recall these pibs but that comment has been on certainly since May this year when i first starfed looking at them. I purchased the 5.98% one savings pib which does not have a call /reset till 2019 feeling they were slightly better value

Graysilk

Thanks John, I was actually rummaging around on www.rns searching for the prospectus but couldn't get to grips with it!
DSC, now I need to research 'benchmark gilts' but thanks for the link to the PIB tables, I hadn't noticed this on the site previously.
Colin, thanks for making me aware of the 5.98% being better value.

I'm trying to put a portfolio together prior to my retirement. Anyone any suggestions for long term retirement income ?

Laughton

I could well be wrong so more than happy to be shot down in flames but even if called I can't see the YTM being 14%.

As far as I can see there is only the 100p due on the call date due (no coupon payable on March 7th 2016) so you would pay 98p now (plus costs) to receive 100p in 3 months time so a shade over 8% p.a. discounting any costs on purchase. OK - 8% not to be sniffed at but you have to weigh that up against possibilty of not being called and a re-set to a less favourable rate.

Please tell me where I've gone wrong anyone.

shaunm

I sold my holding back a few months ago on the basis the price must fall when the coupon is re-fixed at 5 yr Gilt yield + 340bp (currently 4.03%). With the current yield being 6.69% one must assume I have an incorrect understanding. Price is still around 98.5, thus assuming it is likely to be called, but will it?
So it seems we are all in "unknown territory"?

Graysilk

Hi Laughton, I did the calculation for the yield using the calculator on this site and I must say I was surprised. However I had read another article written in November which said that the calculated yield at that time if called was 16% and thought 'we cant both be wrong'....... oh yeah! But as you say even 8% isn't to be sniffed at!

Again I was wondering about the 6.69% yield based on the coupon + the 5yr Gilt......

My lack of understanding makes me wonder if I should be purchasing them.

Laughton

If the purchase price is now 98.5p then I make YTM just over 6% with the risk that it won't be called so then would be locked into a lower rate.

Better rates on non-callable debt are available.

Graysilk

Thanks Laughton - I think your right. Still trying to sort out a decent portfolio......

colin

One savings bank have announced the re rating for the 6.591 bond to be 4.599 from 7th of march.2016. The price of them has also been dropping steadily over the past few weeks. Graysilk,Hope you didn't buy them back end of last year

Graysilk

Hi Colin
As it happens I didn't buy any. I've been in Australia for two months on leave with only a smartphone for Internet which isn't particularly good for research. Back to work next week so will be looking for investments, which under present circumstances is a bit of a challenge.

Graysilk

I've just taken another look at these at 94p and a yield of 7.01. Is there further down side to buying these?

shaunm

OneSavings Bank 5.9884% Floating Rate Sub (reset/call 27/8/2019) Ticker Code 1SBB
This one is providing a better yield with a reset / call of 3 years.
Should inflation / interest rates pickup, then some inflation proofing.
Hopefully One Savings Bank will continue to get bigger with a better credit risk.
Picked up a few at .895 late last week.

Wozzitworthit

Have now followed you on this one Shaun with a small purchase today at same price.

I like the reasonable reset of 4% over the 5 year Gilt yield and , if One Savings Bank decides to call in 2019, there is a good YTM.

(Might have just convinced myself to buy more !)

shaunm

Bond007, I agree with your reasoning
Should there be no further ORB new bond issues shortly, I too may convince myself to increase the holding from it's current 1% holding to perhaps 2% of the total portfolio.
Wait & see, uncharted waters ahead! (perhaps wait until after July!)

Wozzitworthit

Was getting warmer re a further purchase today, but just got quote to purchase at 92p .. so will wait a bit perhaps

colin

Yes, i'm watching these. Agree i'm holding off thinking these are about at the top at the moment. Not a lot to buy at the moment out there, maybe Shauns' comment on june /july referendum is the key.

shaunm

Colin,
Patience is a virtue!
As you say little of value out in the market place
What ever cash one has is probably best staying where it is?
Current economic news not that good
No doubt Greece / Italy / Spain & Portugal "public sector debt" may start to provide newspaper "headline readings" sometime in the summer

Wozzitworthit

After trawling around trying to find somewhere to put some spare cash, methinks I will buy a few more of these - nice middle of the road investment - for all reasons we have discussed

Wozzitworthit

Typical - waited couple of days and then had to pay bit more for them - anyway , the deed is done.

Wozzitworthit

Slight upward movement in price I think probably due to the slight increase in 5 year gilt yields which reflects in the slightly increased current reset value

Or is it a sleight of hand ?!!

Graysilk

According the HL.CO.UK website OneSavings Bank plc (1SBB) 7.875% Perpetual Subordinated Bonds GBP1000 have a running yield of 8.33% which seems attractive in the current financial environment and I am tempted to buy some to hold in an ISA. Is anyone holding any of these and aware of any potential issues?

Wozzitworthit

Find it surprising that HL are quoting that.
These were reset to 5.9884% on 27 August 2014
They will either be called or reset to 5 yr Gilt Yield (that's Yield to Maturity, not running yield) plus 4% on 27/8/19.
Currently the running yield is around 6.14% and YTM 6.99% (that's yield to 27/8/19 - if they are called)
A good way of keeping up to date is to look at the weekly lists that Canaccord produce
Go to
http://www.canaccordgenuity.com/en/cm/Our-Company/Fixed-Income/Fixed-Interest/
and click on Leading Prefs and PIBs

Even then, depending on your broker and the quantity you wish to purchase, the prices can vary a bit - but it's a useful source of info (it shows the interest dates as well so you can work out accrued due on purchase or sale)

There is more discussion on 1SBA and 1SBB on one of the new websites that has recently been started with closure of The Motley Fool

http://www.fixedincomeinvestments.co.uk/boards/

I would thoroughly recommend registering there (it's free) , if you haven't already done so, and read away !!

Graysilk

Thanks for the info. Yes, a bit disconcerting regarding HL giving incorrect details. I dont use them as a broker but I have found the site easy to use for research and prices. Will now have to double check using the Canaccordgenuity website before buying in future. I see the current 5 yr gilt yield is 0.68% .

In this thread Shaunm refers to OneSavings Bank 5.9884% Floating Rate Sub (reset/call 27/8/2019) Ticker Code 1SBB as providing a better yield with a reset / call of 3 years. How is the floating rate calculated?

Graysilk

Thanks for the link to FII website. There appears to be some very well informed posts.
Just reading about Co-operative Bank 11% Sub Notes which I hold............ Mmmmmm!!!!

Wozzitworthit

If you read through the post on One Savings Bank 1SBB you will see the pros and cons of both 1SBA and 1SBB.
The run yield is better on the 1SBB but depending on when called, the Yield to Maturity/Call on the 1SBA can be better - anyway, have a read through that post
( I ended up owning some of each)

!SBA floating rate is reset at 5 year Gilt plus 3.4%
1SBB is reset at 5 year Gilt plus 4%

As you say, the 5yr gilt yield is currently around 0.68%

Not sure if that answers your question re how the rates are calculated

Graysilk

Thanks - appreciate the explanation, I was unfamiliar with 'floating rate' expression. I will take the time to read through the posts to understand why 1SBA may be a better buy at 5yr gilt + 3.4% against 1SBB at 5yr + 4%.

Graysilk

As both of these are currently trading at less than Par but with a higher Coupon now than if they are reset in 2019 do you think they will trade at a larger discount to what the current bonds are because of the lower coupon?

colin

graysilk, who knows what will happen in 2019 . Bonds are high now and some are reputedly falling. Will the bank rate improve from it's present low, if so bonds will drop but their yield lmprove. You pays your money and take your chance. I personally would consider dated bonds. With them you have a fixed rate of intrest and a fixed date of redemption, but at the moment i'm hanging fire till the yields are at a better level. I do hold some one savings bank but bearing their exposure to the buy to let market (and the hammering the government is giving this sector) I'm tending to look elsewhere

Wozzitworthit

Graysilk - if nothing else changes, then yes, the prices of the 2 bonds will drop so that the daily yields will rise to same as they were before the reset.
As you may have read elsewhere, it is thought that within the next few years OSB will call these bonds in, as PIBs/PSBs are no longer of much importance in the capital hierarchy.
Depending when this happens, it does make the yield to maturity/call a reasonable return - I think this is the chance that a few people are taking, as the downside isn't the end of the world