Provident Financial 6% Sept 2021

sussexmade

Things look a bit more stable at Provi now and ords share price looking stable over the last few months albeit couple of percent lower today.
These bonds are currently on a YTM of around 5.05 % and running yield of 5.93% excl dealing charges. With such a short time until maturity and just I think around £60m in issue I suspect they will be allowed to mature and unlikely at the moment to extend with a bribe.
I already have quite a few of the 2023 ( about 3% of total portfolio ) but tempted to have a few of these too, am I being over optimistic and missed something ? Maybe maturity will be pushed back ?
All comments welcome.

Laughton

I've probably made a schoolboy error but got a quote to buy at 1.0124 and allowing £9.90 dealing cost I make the YTM 4%.

I already have some - what might the "bribe" be? Surely if pushed out 2 years then presumably it would have to match those PF23s (7%). That would be nice.

dandigirl

We have quite a lot of the 21s. Less of the 23s. Thought about adding more but we are conscious that £250m falls due in 6/23 with the £60m 23s falling due in 10/23. That's £310m falling due close together.

Probably O.K. but..

Have also been holding off as a Trading Statement is normally published around now.

JammyDodger

PF23's are at around 5.125% YTM right now

I have both the 21's and 23's. I don't really want any more 21's as I would rather have something with a longer dated redemption and I feel the moment has passed on the 23's at 100p to buy.

Happy to hold both but not inclined to add.

tbh nothing in the bond area takes my fancy at the moment. Perhaps it's because I cannot find the mindset to move on from the yields that were available 3-6 months ago but with most issues trading at above par and some above the pre-Covid price it seems to me the world has gone mad.

sussexmade

Laughton, I got the ytm from the calculator on here at price 101.00 ( as at 15/1/21 ).. Have to admit it looks wrong as 6% for about 2/3rds of a year is 4% and when you add compounding it's no more that 4.25% gross before comms etc

dandigirl, yes there's a lot of money to be found in just a couple of years or so but that's what makes me feel they might just push these out timewise and include an inducement of some sort but probably not as attractive as the IPF extension.

JammyDodger, thanks I feel a bit like you that prices in general on ORB are not that attractive but I am only thinking of the Provi 21's being better than anything else to park monies in the short term. However on reflection I am getting cold feet and don't think the return is worth it on such a risk as Provi . As Laughton stated an uplift to 7% for extension might be worth consideration.

JammyDodger

I not sure about the extension on the PF21's as PFG now have a bank licence and can access the savings market thus they would want to replace as many of these bonds with personal savings as they can.

However, the bit I don't understand is that the FCA will have determined the maximum they can borrow from savers and they will still require some Tier 1&2 capital so I don't think it's a given that the whole bond will be repaid

sussexmade

JammyDodger, probability quite high I guess on tier 1 & 2 cap. requirements. Anyway all in all think it's not the place to park short term monies, but where is ?

JammyDodger

Hmm. Update from PFG this morning which wasn't very pretty. Shares down 26% as I write and putting a scheme of arrangement for one of the divisions which if isn't accepted would result in dumping it into receivership which they suggest wouuldn't affect rest of group except by reputational damage. Headroom on the capital ratios is massive though.

96.75p to buy at the moment on the 21's

I have a small quantity of both 21's and 23's, having (luckily?) sold three quarters of my 21's only last week to spend on NCYF instead.

I have decided to do nothing. The 23's seem to have come down to a price which seems to me in the right ballpark. The 21's look priced wrongly to me but I'm not entirely sure about the level of security on each issue as I found the prospectus's a bit hard to unravel on that matter.

Laughton

@96.75p I make the YTM on the 21s just over 12%.
I already have some but must admit, I'm tempted. Surely they must be able to get through to September???

dandigirl

I think so but we have a lot of the 21s already.

colin

Apparently the FCA have opened an enforcement investigation against the credit consumer division however this will not be completed untill 2022. Hopefully the 21s will be settled in September.

sussexmade

It looks like the reactionery selling early this morning has ceased now and from what I can see not a huge volume has been sold off anyway. With the ords down so abruptly the market makers would appear not to be so worried on the bonds and as Colin said above the 21's would appear safe before the review is to hand. It follows the 23's might be more volatile but atm that doesn't seem to be too much of the case unless the market hasn't woken up to the fact.
For me the 23's would need to be around 90p to be worth a punt.-risk/reward.

JammyDodger

I've bought a small amount of 23's to add to my existing holding. If the share price is a fair reaction then the fall in bond prices seems overdone to me.

PADDY

I'm sitting on the fence, I have previously held reasonably large positions in PF21, 23 and IPF, but sold out recently, this price drop doesn't tempt be back in . I doubt if the FCA will want to kill off PF, but it's probably worse than the PF spin, IMHO.

JammyDodger

I read the information booklets on both the 21's and 23's last night and was assured that the liability for payment of the bonds falls on the parent company PFG rather than just a subsidiary.

Their CET1 ratio is 34.5% with £145m of headroom and that would seem to imply they have anticipated the current situation.

I am assuming the 21's are under pressure as I'm guessing the market was expecting them to be paid off at maturity, but now there may be some question as to whether they are rolled or there is a new issue, in either case possibly for less than the outstanding value. I guess the coupon would depend on the scheme of arrangement.

it would be helpful if this issue is rolled in something else as there are so few options on ORB.

Gliderpilot

I sold all my holdings in the 21 and 23 bond yesterday-at a profit despite the fall yesterday. So often in these situations bonds go down slowly and an early sale works well. With other investments going well no point bothering with this hassle. Oh for for more bond issues and of a reasonable quality.

dandigirl

I did that with Burford but now regret not holding on.

sussexmade

I had Burford ords and sold out way too early but still have the bonds which for the moment deliver. Provi still have bonds but not ords-tempting to buy 23's at 90/just under soon maybe but won't sleep a wink if I do ! As others have said can we please have a new safeish issue with reasonable coupon and max 5-7 year term.

N.b. get the feeling that the Provi bonds have stabilised now and no more large trades going through. Wonder if the idea of 21's may have redemption/rollover option is steadying the ship ? IPF style 7.75% might do it for some.

Laughton

"can we please have a new safeish issue with reasonable coupon and max 5-7 year term."

Not sure that is possible/likely as things are going at the moment. Treasury yields in US (and therefore ultimately everywhere) moving relentlessly upwards and " projecting" 3.4% on the 10 years.

What rate would you be happy with if tying your money up for 5-7 years?

Personally I'm happy with the PF21s - maybe by September things will be a bit clearer both for PF and fixed income in general.

Almost all of my fixed income is due to mature over the next 4 years although I do have some "irredeemable" prefs paying close to 6% (over 6% based on prices I can sell for). Happy with continuing with what I consider the "safer" issuers - ELLA, NWBD, AV.A. Not so sure about LLPC, LLPD and SAN.

JammyDodger

"can we please have a new safeish issue with reasonable coupon and max 5-7 year term."

I agree with the sentiment. I really wish there were more new issues regardless of coupon or duration as then there would be more choice. A 5% return is the sweet spot for me on 5 years, probably 5.5% on 7 years.



I have taken a mixed approach where I also own some bond IT's. I'm paying someone else a percetage to do not very much but it does provide access to the bond market. Of course, the challenge with doing this is that if interest rates go up too fast you take a permanent capital loss on the share price of the bond fund.

I have recently bought NCYF and HDIV. NCYF very high yield debt but it's trading below NAV for only the second time in the last 10 years. The dividend hasn't been fully covered for years on NCYF and is now 9.1%. They should cut it really but I'm in with the knowledge I'll accept a 3% capital loss each year (mine are mostly ISA and SIPP'ed)

HDIV is a bit different sitting at around a 8% discount to NAV, much lower risk investments but only a 5.4% dividend yield. I reckon the dividend is covered though and the investments are far more robust than NCYF. It's probably the better trade at today's price's as I think I'll get the dividend and the yield will close, the inherent investments are less risky and it better suits my risk profile.

Anways with gilts rising at least there is the possibility of getting a slightly better return on our money.

sussexmade

Yes I mostly agree with JD-a new Retail Charity Bond would do the trick with 5% for range 2025-2027 and 5.5% for say 2028. Last Greensleeves was 5% for 2030 and prospects have changed somewhat since then.

JammyDodger

I have sold my 21's and 23's. I've copied a small section from the latest RNS at the end of this post.

The scheme of arrangement regarding redress claims worries me on several levels.

ideally I'm investing on the basis my capital is only at a tiny tiny risk and PFG doesn't fit my criteria any longer.

Specficially whilst the company have a plan to deal with the redress claims by going nuclear if required and dumping the subsidiary involved into administration, I worry that someone at the claims management companies will find a way to bring the liability back to the parent.

Or alternatively the company suffers so much reputational damage it if forced to revise the scheme or withdraw it. I do not think the newspapers are simply going to ignore it given that the victims will be small borrowers who could really use the money. Getting 10% back instead of 100% isn't going to cut it with the media headlines.

Finally I worry those clever claims management people fina a way to shift the cut off date for applications to delay the scheme thus getting their claims in at 100%. Probably I shouldn't worry about this one.

As an aside and of no relevance to my decision is it a conincidence that they propose to put £65m into the scheme of arrangement which is exactly the same as the issue size of PF21?

From the RNS on this topic
"For context, the number of complaints to the Financial Ombudsman Service (FOS) across the home credit market increased by c.200% in H2'20 vs. H1'20. For PFG, this has resulted in payments to customers of c.GBP25m in H2'20 (H2'19: c.GBP2.5m) including first response and FOS redress payments. In addition, CCD has processed balance reductions for home credit customers of c.GBP11m during the same period (H2'19: c.GBP1.0m)."

sussexmade

JD-I too worry somewhat about the action however I maybe foolishly take comfort from the fact that the ords have recovered quite well and the bonds have even picked up a tad. Think the £65m question is just coincidence.
Good luck all that sail in this ship.

Gliderpilot

It is concerning that they can't fix a year end results date because of FCA negotiations. Given uncertainty I chose not to risk capital as the return is too modest to justify that. Will read year end results with interest. Not clever to upset the FCA twice!

colin

Mail on Sunday today reporting Provi is to wind up it's doorstep lending operation

Laughton

How long before we start hearing about unscrupulous unregulated "lenders" charging exorbitant interest rates and threats being made if borrowers unable to meet payments??

The law of unintended consequences.

sussexmade

Thanks Colin I saw the article. Have to agree with Laughton comments-think there will be 300,000 at least that have nowhere to go for short term borrowing and probably left with completely unregulated people to deal with.

Btw and as an aside what happened to Kuffeler/NSF-can they fill the void or are they in such a state of flux that they will be unable to step up ? I see the share price has collapsed over the last few months and years.

colin

The loan sharks will be circulating again !!!

Wozzitworthit

Now officially confirmed in their results announcement

https://www.londonstockexchange.com/news-article/PFG/pfg-2020-preliminary-results-announcement/14969103