Page 26 - DIY Magazine June 2018

‘....SHOULD I STAY OR SHOULD I GO NOW?’ THE CHOICE FACING INVESTORS IN WASPS’ 6.5% 2022 RETAIL BOND
To complete the line from the Clash anthem – ‘If I go, there will be trouble. And if I stay it will be double....’; many investors in the Wasps 6.5% 2022 retail bond (‘the bond’) must be wondering just that,
sell or hold? – says Retail Bond Expert’s Mr Bond.
Notwithstanding the significant conference and events business described by then Chief Exec David Armstrong when Wasps purchased the Ricoh Arena (more) many will consider it first and foremost a rugby club.
Perhaps the fundamental flaw within the bond was best summarised by my last piece on the issue; ‘The woes of the club both on and off the pitch..’
It is difficult enough for investors to read the prospectus of an issue, and to understand their business model and how robust it maybe, in addition to deciding whether the coupon offered matches the risk.
Mr Bond then asks, ‘how can an investor be expected to understand the vagaries of a sports team performance over seven seasons, a lifetime in professional sport’?
As such, is an institution of this type suited to retail investors?
It’s easy to understand die-hard fans wanting to invest and support their team / club, after all sport is an emotional subject, whereas investments are not supposed to be!
Recent headlines confirm the issues that investors cannot possible have been able to consider when making the investment, e.g.
• rumours of a player revolt because of the lack of a promised training facility
• England stars Elliot Daly and Joe Launchbury rumoured to be set to leave over ‘broken promises’ on training facilities and contracts’; an exodus of its marquee players.
IF I GO, THERE WILL BE TROUBLE. AND IF I STAY IT WILL BE DOUBLE...
All of this, perhaps, raising two questions:
1. Are direct investments into bonds suitable for retail investors at all?
2. If so, what constitutes a ‘suitable’ issue / issuer?
We believe that the answer to first question is yes. Despite what the fund management industry might
tell us, if the ownership of bonds is restricted to ‘professional investors’ only then there is a good argument for doing the same with equites, after-all debt ranks senior to equities in the event of a default.
As to what constitutes a suitable issuer, perhaps we should, perhaps unfashionably (Brexiters beware!), look to the European Union for guidance; the Prospectus Directive requires issuers of bonds to be a PLC, or overseas equivalent, and to issue either:
1. A Corporate Bond, backed by two-years audited accounts, or
2. Asset-Backed Security (‘ABS’)
The prime difference being that buyers of corporate bonds have access to the issuer’s balance sheet in the event of default, however they may be junior to other creditors, whereas investors in an ABS have access only to the assets held by the Issuer.
The other issue for buyers seems to be size and liquidity, the two are often mentioned together as it is always assumed that the larger the issue the more liquid it is. Mr Bond thinks that this is perhaps missing the point.
Firstly, what is meant by liquidity? For retail investors this is more likely being able to sell if the issuer appears to be having problems. In any market bid prices fall when there are more sellers than buyers, in a falling market
a bid is a bid, take it as the next is likely to be worse! In addition, in times of stress liquidity dries up, look at 2007-2008 when even supposedly liquid markets locked.
DIY Investor Magazine | Jun 2018 26