Hot on the heels of the recent index-linked issue from Tesco Bank, mezzanine finance company
Following the path established over the last few months, the bond will be available for subscription – in this case between 1 and 16 of December – as a new issue with a number of stockbrokers and private investor platforms. The 7 per cent yield to maturity is certainly tempting as the average yield on retail bonds of similar maturity is just 5 per cent. However, ICG's business is not without its hazards – some of its investments include the perennially troubled BAA – and it made its first loss in 20 years in 2009. That said, ICG has been in this business for over two decades and runs a diversified portfolio with an emphasis on recovery of assets. Additionally, the company's gearing, which stands at around 100 per cent, is a small fraction of that which might be employed by a bank.
Relative value is more tricky to assess as there are few direct comparables. As a manager of external funds, the valuations on fund manager debt might be a useful comparison; both Fidelity and Henderson have medium-dated sterling bonds outstanding, yielding 6.6 per cent and 6.2 per cent respectively. However, fund managers do not generally use their own balance sheets, so perhaps another yardstick might be a high-yield bond fund; the euro-denominated iShares Markit iBoxx High Yield Bond ETF (IHYG) has a yield to maturity of 9.6 per cent. Another factor to consider is ICG's high dividend yield, currently 7.8 per cent, which investors might prefer to fixed income.
More details on the bond can be found on the company's website here.
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Intermediate Capital Group 7% 21 Dec 2018 ISIN: XS0716336325 |
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| Price: | 100p | Yield: | 7% |
| Maturity: | 21 December 2018 | Piece: | £2,000 |
| Coupon: | 7% | Credit rating: | BBB- |
| Payment: | Semi-annual | Issue size: | £50m |
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MARK'S VIEW:
The new ICG bond is fair value and offers a decent yield at comfortable maturity – long enough for Isa inclusion but short enough to make redemption a realisable goal for most investors. The bond is a useful addition to a diversified bond portfolio but, given the nature of the issuer's business, it should be viewed as slightly higher risk than some of the recently launched retail targeted bonds. Fairly priced.
Bond of the week is supplied by fixedincomeinvestor.co.uk and is subject to their disclaimer.
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