wisealpha - senior secured debt for ordinary folks

They tell us this is the sort of debt that is normally sold to banks and so on in £100K+ lumps, but now with a £100 minimum investment.

Opinions please (particularly the Virgin LIBOR* plus 3.5 2023) (*greater of libor or 0.75)

Comments

  • Thanks. Actually it was that forum which alerted me. But wisealpha isn't p2p, I was looking for wisdom about bonds
  • Was thinking of posting an update on WA and on the basis of my first impressions, and how, nine months down the line things have panned out.

    Was fairly neutral about the concept, and I suppose this was in the most part down to the innovation of the platform, the lack of a track record, as well as the concept of paying a 'management fee' for the privilege of being a bond/note holder.

    If the truth be known, if ORB issues had been maintained I would probably still not have dipped my toe in the water, but with the spectre of a number of retail bonds maturing over the coming years, and little signs that the ORB is going to recover I found that I needed to find a home for the maturing capital that once reinvested would be able to pay me a decent income.

    The concept of notes backed by the bond, the SPV for each note/bond and the independent management of the funds is responded to by WA via another posting on this board as well as being on the web page. Once you manage to get your mind around this, the platform is fairly straight forward to use. What has to be remember is that currently the bonds are effectively second hand, and that the WA platform is not an open market, more a reseller of critiqued bonds that meet specific credit hurdles etc. Similarly full financials are provided with each bond being listed. Each bond is offered at a fixed price which WA maintain is the buy price to them. In turn note values are calculated back to the bond value.

    Historically selection was limited to around a dozen senior secured bonds in blue chip operations at any given time; although in the last two months or so they have started to ramp up the offering with bonds from the likes of Aston Martin, House of Fraser as well as perennial additions from Pizza Express. Recently they have in addition also started to offer high yield corporate bond.

    Transfer of funds into the account is easy, and similarly to date all interest payments from a portfolio of around 15 to 20 bonds have been paid on time and in full. A couple of bonds (Travelex and Study Group) both repaid prior to the bonds forecasted end date, and in both cases capital and interest were return in full.

    The management fee is based on the premise of 1% of the value of the account held. Currently this equates to approximately 1% of the gross coupon price of each bond; so for example a bond paying a gross of 8% equates to a net (before tax) of around 7% - just a rule of thumb but a good indicator

    The two biggest negative in my book are the fact that all purchases are transacted on note values and not equating to nominal number of bonds. Thus when attempting to purchase you need to calculate both accrued interest and to account for the bonds value plus/minus from par. Secondly the secondary market is currently near non existent, but as I choose to buy and hold this is not an issue for me presently

    Still early days, but having exposure to secured/high yield bonds that in most cases rank higher than their retail equivalents is on reflection a big plus. Similarly my secured bond portfolio is yielding around 8% ( after fees but before tax) and as opposed to the retail portfolio that is giving around 6.5% ( before tax).

    Nothing has fundamentally altered in the last nine months to give me confidence that the ORB is going to be able to generate more listings even with the assumption that interest rates have only one direction to go. With this being the case, and with the lack of a credible alternative I think that the capital from my retail bond holdings on maturity will as a matter of course cross over to the WA platform

  • Thanks for that update. All sounds very interesting.

    What I can't get my head around though is the yield figures you give. My understanding was that this platform was set up to enable smaller investors to get access to senior secured bonds issued in very large denominations and so usually only of interest to institutions. But how can such bonds possibly yield anywhere close to 8% net of fees?
    Can you give us some examples of the bonds held?

    Even 6.5% yield that you mention for ORB bonds sounds very high to me.
  • Hi Laughton.

    For the senior secured/UHY bonds held via WA I am currently holding a portfolio of 18 bonds and which has a heavy weighting towards the higher yielding. Principally these has been as follows and with all yields shown as YTM and net of fees but before tax

    * Matalan Jun 2019 6.88% which were purchased well below par in two tranches at a net yield of 13.79% and 10.69%.

    * Garfunkelux 11% unsecured high yield due 2023 giving a net yield of 8.6%

    * House of Fraser LIBOR Bond due Sept 2020 and currently at 8.2%.

    * Pizza Express 8.63% unsecured high yield due 2022 yielding a fraction over 8%

    * Wise Alpha themselves offered a one year 'fund of funds' bond of 8% net and have recently offered the same deal but over a five year period.

    If you are interested the current YTM figures these are shown in the 'WA Market Place' and as per the link below.

    https://www.wisealpha.com/invest/#senior-secured

    In respect of my 'retail portfolio' of bonds I think you have assumed that these are all ORB issues. This is not the case, and with myself holding a number of what i suppose you would call higher interest legacy bonds/PIBs such as the CO OP 11% Final redemption, Halifax(BOS) 9.375%, Skipton BS 12.87% etc.

    The point that I was trying to draw out Laughton is that the ORB seems to me to be dead in the water. At the SME level you have to question why go through all the hoops to have a LSE listing when you can offer a mini bond with less regulation and less overhead. If the SMEs are not interested what future for the ORB?

    I think a number of us are in a similar position that we have ORB/Retail Bond maturing over the next few years and are questioning where to put the capital. For me WA seems to offer the prospect of tapping into what has until recently been a no go zone for the smaller retail investor and which, touchwood, has proven to be fruitful and trouble free over the last 9 months




  • Interesting concept. Concerned about company security as not FSCS protected, and size matters; Am I right wisealpha only has £7.8m invested (tiny), at 1% management fee, doesn't seem a lot of income to sustain the company?
    Also, any ideas how to set up a SIPP to invest in this concept?
    Thanks for input.
  • The Concept is interesting, however there is no security for your investment.
    Credit review from Experian is "Maximum Risk" (08967521 : WISEALPHA TECHNOLOGIES LIMITED)
  • Latest Statutory accounts as at 30th June 2017 also available at Companies House,
    Free download from https://beta.companieshouse.gov.uk/help/welcome
  • ArthGoth,
    You may wish to give us your assessment of the Statutory Accounts
  • Very often I invest more than £100k, sometimes more than £200k in a single bond, I wouldn't invest in any of the bonds held by WiseAlpha because they are too risky for me, but if I changed my mind at least I could sell out of my investment reasonably quickly and I would not be paying high fees for simply holding the bonds, for me this concept is a complete non-starter.
  • Having looked at this type of road myself, I know the frictional costs of creating a gold plated set up are a nightmare and kill off good ideas. Not researched bonds they hold but the idea of swapping betwen the below IPF was appealling on risk/reward but size deterred me
    http://www.fixedincomeinvestor.co.uk/x/bondchart.html?id=3628&stash=F68519B0&groupid=4
    http://www.boerse-berlin.com/index.php/Bonds?isin=XS1054714248
  • Hind, the EUR/GBP currency risk is huge between these bonds and hard to manage, a better example is Ladbrokes ORB and Debt, the spread has narrowed recently:

    LAD2 LADBROKES GROUP FINANCE PLC 5.125% STG BDS 16/09/2022
    http://www.londonstockexchange.com/exchange/prices-and-markets/retail-bonds/company-summary/XS1066478014ZZGBPUKCP.html?lang=en

    54OU LADBROKES GROUP FINANCE PLC 5.125% GTD NTS 08/09/23
    http://www.londonstockexchange.com/exchange/prices-and-markets/debt-securities/company-summary/XS1514268165ZZGBPRCNT.html?ds=1&lang=en
  • Paddy, currency hedging is something I find quite easy to do. Thx will study your 2 examples
  • Can you please explain how you hedge the currency exposure, I don't have a cheap way of doing it .
  • Mainly FX futures at Interactive brokers, you basically pay or recieve the % rate difference betwwen £ and choosen currency ie at present paid to short euros
  • Do you mean exchange traded currency futures?, I agree this is a reasonable way of hedging FX risk for a retail investor, the % interest rate difference is not a cost if the interest rates are those for the maturity date (expiry date) of the futures contract, so for example if the future expiry date is December 2017, then the real cost/benefit is the difference between Dec 2017 GBP interest rate – Dec 2017 EUR, this cost is reflected in a different exchange rate (called the forward FX rate) for December 2017, and so on for other maturities.
    Personally, I haven’t gotten around to opening a futures account, I have an AJ Bell Platinum SIPP capable of holding a futures trading account, but I reckon it’s expensive to run.
    If it is a real futures account then there will be fairly large so called ‘margin’ deposits to cover possible losses, also transaction costs in ‘rolling over’ the futures when they expire.
    It is possible that brokers offer a retail friendly type hedge, but it probably has hidden built-in costs.

  • Ps , I had planned on opening a futures trading account way back in 2011, with MF Global, but they went bankrupt before I could get around to it, that put me off a bit...
  • Yes currency futures and rolling each quarter makes another job but its the most efficient way to hedge I know of. As I understod it creditors recieved assets back such as stocks and bonds. I tend to hold stocks as collateral and cash below the compensation limit
  • Yes, with MF Global everyone got their money back in the end, but you could do without the worry.
    The reason I am acutely aware of FX risk, is that before Brexit I had held a very large USD bond holding, unhedged invested at around 1.68 USD/GBP, having voted to remain, the silver lining was I got an immediate unexpected bonus, I liquated the holding and got 1.24 back into GBP, BUT I am well aware FX cuts both ways, in the medium term I would expect GBP to strength against USD and EUR once a Brexit deal has been worked out.
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